Impact of Selected Economic Indicators on Foreign Investment Inflow in Nigeria and South Africa: Optimal Indicators Search

Abstract

Search for ways of attracting foreign investment into developing countries raises great interest among researchers and therefore, there is a search for the economic indicators affecting foreign investment appeal in Africa. This study focuses on the impact of economic indicators of Banking Sector Development Model on foreign investment inflows in Nigeria and South Africa. Various data on banking sector; economic indicators of the classified model were sourced from state statistical bulletins as well as World Bank for the year of 1980-2013. The analysis employed several econometric tools: Unit root, Co-integration, VAR estimates of relative and global statistics to measure the impact and significance of economic indicators attracting/repelling foreign investments. Akaike information criteria for best model selection results showed that economic indicators of Banking Sector Development Model in Nigeria attracted more foreign investment than it did in South Africa. The study concluded that the optimal economic indicators attracting foreign investment are domestic credit and inflation rate. Therefore, the study recommended that effort is highly needed by the government to promote sustainable domestic credit facilities to local industries to attract foreign investment and there should be proactive efficient interest rate control to encourage loans and advances in these two countries.