Error Correction Model of Foreign Direct Investment Determinants

This work investigated the impact of foreign direct investment on some selected macro-economic variables such as real GDP, gross fixed capital formation and unemployment rate. The determinants of foreign direct investment were also investigated. Using error correction model and Granger causality test, one arrived at a parsimonious result which revealed that foreign direct investment though impacts positively and significantly on the gross fixed capital formation, has not made any positive and significant impact on the growth of GDP and reduction of unemployment. The results of the Investigation of the determinants of foreign direct investment inflow to Nigeria show that causality runs from government policy, fiscal incentives, availability of natural resources and trade openness to FDI without feed back effect. The error correction model reveals that past foreign investment flows could significantly stimulate current investment inflows while inadequate natural resources reduce the inflow of FDI. Fiscal incentives, favourable government policy, exchange rate and infrastructural development are found to be a positive and significant function of FDI in Nigeria.