Abstract
Nigeria is currently plagued with terrorist attacks and other social vices with an attendant negative influence on the investment climate of the nation. Previous empirical studies have used military expenditure and financial budget on defense and security as a proxy for terrorism, which may not be empirically appropriate for a nation whose security architecture has been alleged to have been compromised following several anecdotal. Hence, the present study uses terrorism index by Institute of Economics and Peace, Global Terrorism Index which has no financial component in its methodology. The main objective of this study is to empirically examine the effect of terrorism on FDI inflows from 1990 to 2022. The nonlinear autoregressive distributed lag approach of bound test and error correction model were utilized given that time series variables were stationary at levels and first difference, as reported by the ADF and PP unit root tests. The Bounds test revealed that a nonlinear long run relationship do exist among the variables within the era of analysis. On whether the effect of the positive and negative changes in terrorism index on FDI inflows in Nigeria is the same, we found out that the effect is not the same as negative change is empirically stronger than the positive change both in the long run and short run. In the long run, the negative change in terrorism index is larger than the positive change in terrorism index by 1.75%. In the short run, positive and negative changes in terrorism index have significant effect on FDI inflows in Nigeria, but not the same magnitude and size in effect as negative changes is larger than positive changes by 0.96%. The ECM empirical result showed that in case of distortion or shock to the pace of FDI inflows into Nigeria in the current period will be brought back to long run equilibrium at 6.68% in the coming period, this implies that the present value of FDI inflows adjust slowly to positive and negative changes in LRGDP, LTO, EP, EXR, NTI and UMP. Based on the empirical results found, the study recommends that since Nigeria terrorism index does not necessarily deter FDI inflows in Nigeria; policymakers and the government can take full advantage of other determinants or drivers of FDI inflows by expanding the market size, improve more in infrastructural facilities, and comparatively strengthening the economic ties with the rest of the world to make Nigeria a safer haven for investment opportunities.
Published Version
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