Sani Abdul Rahman Bala* and Usman Mamuda Musa
This study investigated the impact of infrastructures availability proxied by electricity power consumption and exchange rate on the inflows of Foreign Direct Investment (FDI) to Nigeria. The study used annual data from 1984 to 2018. Unit root test and ARDL (bound test) and granger causality test are the econometric tools used in investigating the relationship between the variables. The unit root test indicates that FDI inflows and infrastructure, were stationary at level value 1(0) while exchange rate was stationary after first difference 1(1). Furthermore, the bound test (ARDL) results revealed that infrastructure and exchange rate have positive and statistically significant influence on the flow of FDI. The long run elasticity coefficient reveals that the 1%change in infrastructure and exchange rate will change FDI inflows by 2.42% and 0.34%. While 1% increase or decrease in the independent variables will lead to a corresponding increase or decrease of 1.24% and 0.07% in FDI inflows in the short run. The results of ECM indicate that there is both short and long run equilibrium in the system. The coefficient of one period lag of ECM is less than one, negative (-0.75) and statistically significant at 1% level. This implies that the system correct itself from the disequilibrium at the speed of 75% annually. Granger causality result show that there is an evidence of bidirectional causality between FDI inflow and infrastructure availability. Similarly, there is unidirectional causality running from exchange rate to FDI flow in Nigeria. The study therefore recommends the need for the government and the private sector to improve on power, transmission and distribution. This will reduce the cost of doing business in the economy and in turn attract more investors to the economy. Similarly, policymaker should re-design the existing exchange rate policy so as to create investors’ confidence in the country’s currency.
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