JEFMS Journal

ABSTRACT:

This study examines the relationship between the two major investment components (domestic investment and foreign direct investment) and macroeconomic stability in Nigeria. In order to capture the macroeconomic stability, some selected macroeconomic variables are presented, namely: real GDP growth rate (RGDPgr), trade openness (TOP), exchange rate (EXR), inflation rate (INFR), interest rate (INTR), private sector credit (PSC) which represent domestic variables and world oil price (WOP) which represent foreign variable. The study employs Johansen cointegration and Vector Autoregressive model as the estimation techniques. Findings from the study reveals that there is no long-run relationship between the selected macroeconomic variables and the two investment variables. The study also reveals that shocks and fluctuations from real GDP growth rate (RGDPgr), private sector credit (PSC), inflation rate (INFR), interest rate (INTR), exchange rate (EXR) and world oil price (WOP) strongly and significantly affect domestic investment in Nigeria; while the shocks and instabilities arising from real GDP growth rate (RGDPgr), inflation rate (INFR), interest rate (INTR), exchange rate (EXR), trade openness (TOP) and world oil price (WOP) majorly and significantly affect foreign direct investment in Nigeria during the period under review. The study therefore recommends that Nigerian government should provide stability measures in all the aforementioned macroeconomic indicators, as this will attract a higher level of FDI and this will create an enabling business environment for domestic investment to operate.

KEYWORDS:

Domestic Investment, Foreign Direct Investment, Macroeconomic Stability, Johansen Cointegration, Vector Autoregressive

REFERENCES:

1) Adigwe, P. K., Ezeagba, C. E. & Francis N. P (2015). Effect of foreign direct investment on Nigerian economic growth. European Journal of Research and Reflection in Management Sciences. 3(5), 55-70.

2) Agosin, M. R, & Machado, R. (2005). Foreign investment in developing countries: does it crowd in domestic investment? Oxford Development Studies, 33(2), 149-162.

3) Agrawal, G. (2015). Foreign direct investment and economic growth in BRICS economies: A panel data analysis. Journal of Economics, Business and Management, 3 (4), 25-41.

4) Akinboade, (2006). The Location of Foreign Direct Investment: An Empirical Analysis. Applied Economics 31, 65-76.

5) Akinlo, A.E. (2004). Foreign direct investment and growth in Nigeria: An empirical investigation. Journal of Policy Modelling, 26(7), 627–639.

6) Apergis, Katrakilidis, C.P. & Tabakis, N. M. (2006). Dynamic linkages between FDI inflows and domestic investment: A panel cointegration approach, Atlantic Economic Journal, 34, 385-394.

7) Asien, E.N, & Oriavwote, V. (2013). Association between foreign capital inflow and macroeconomic factors: Evidence from Nigeria. Journal of Economics and International Finance, 5(8), 307-317.

8) Asongu, S.A (2012). The effect of foreign aid on corruption. Economic Bulletin, 32(3).

9) Bayai & Nyangara, D. (2013). An analysis of determinant of private investment in Zimbabwe for the period of 2009-2011. International Journal of Economics, 23(3), 53-78.

10) Bayraktar, N. & Fofack, H. (2007). Specification of investment function in Sub-Saharan Africa: World Bank Working paper No. 4171

11) Borensztein, E., DeGregorio, J. & Lee J. (1998). “How Does Foreign Direct Investment Affect Economic Growth?” Journal of International Economics. 45(1), 115-135.

12) Chakrabarti, A. (2001). The determinants of foreign direct investment: sensitivity analyses of cross-country regressions. KYKLOS 54, 89–114.

13) Chenery, H.B. (1952). Overcapacity and the acceleration principle. Econometrica 20(1), 1-28.

14) Cleeve, E. (2004). How effectiveness are fiscal incentives to attract FDI to sub-Saharan Africa. Paper Presented at the IAABD 5th International Conference Atlanta, April.

15) Froot, K.A & Stein, J. C. (1991). Exchange rates and foreign direct investment: An imperfect capital markets approach. Quarterly Journal of Economics. 105, 1191-1218.

16) Gross & Trevino (1996). Determinants of Foreign Direct Investment, Journal of International Economics, 45, 115-135.

17) Koyck, L. (1954). Distributed Lags and Investment Analysis. Amsterdam: North-Holland.

18) Ndubuisi, P. (2017). An Analysis of the Impact of Macroeconomic Variables and Foreign Direct Investment in Nigeria: A VECM Granger Causality Framework. Journal of Business and Economic Development, 2(3), 187-197.

19) Obidike, P.C., & Uma, K.E. (2013). Effects of Macroeconomic Variables on Foreign Direct Investment in a Liberalized Economy: The Case of Nigeria. IOSR Journal of Economics and Finance, 1(4), 12-20.

20) Sims, C. A. (1980). “Macroeconomics and Reality in Econometrica”, Econometrica is currently published by The Econometric Society, 48(1), 1-48.

21) Umar G. & Abdulhakeem K. (2010). “Oil Price Shocks and the Nigeria Economy: A Variance Autoregressive (VAR) Model”, International Journal of Business and Management, 5(8), 43-61.

22) Uwabamwen & Ogiemudia (2016), Foreign Direct Investment and Economic Growth: Evidence from Nigeria. International Journal of Business and Social Science. 7 (3), 89-100.