Impact of Tax Incentives and Foreign Direct Investment on Manufacturing Companies in Nigeria

Abstract

The paper focuses on the impact of Tax Incentives (TI) and Foreign Direct Investment (FDI) on manufacturing companies in Nigeria, the paper used structured questionnaires in collection of data; 325 copies questionnaire. Both descriptive and inferential analyses were used in data analysis, the descriptive statistics revealed that the FDI, Tax Holidays (TH), Custom Duties Exempted (CDE) have mean values of 0.2140, 0.6667 and 0.9290 respectively and transparency, political stability have the mean scores of 2.5 and 4.5454 respectively which indicates that the political stability of Nigeria is good. The Pearson’s correlation result implies that none of the explanatory variables is significantly correlated with the dependent variable. Breusch-Pagan/Cook-Weisberg test is used which gives the chi-square value and its probability at 5% significance level which specifies that the model for FDI is significant at the 0.05 level with a p-value of 0.0002 and Cross-section Dependence Test shows that cross-sectional dependence is not an issue since the probability of the FDI model is greater than the threshold p>0. 05. Wooldridge test is utilized in determining autocorrelation in the idiosyncratic error term in the panel-data model. The result of pooled Ordinary Least Square Regression is presented alongside the result of Driscoll-Kraay. Conclusion was made that TIs have a significant positive effect on FDI inflow into the Nigerian economy. The recommendations are made that: Nigerian government should maintain the elegant of TH alongside CDE and Government should intensify means of ensuring that the impact of TIs on FDI extends to agricultural sectors so as to gain more value and continuously re-invest the profit with a view to enhancing the capital base of FDI inflow.