Determinants of Foreign Direct Investment in Nigeria: A Markov Regime-Switching Approach

Abstract

Several studies have analyzed the movement of foreign direct investment in Nigeria using linear approach. In contrast with all existing studies in Nigeria, this paper runs several non linear FDI equations where the main determinants of FDI are determined using Markov-Regime Switching Model (MSMs). The approach enables us to observe structural changes, where exist, in FDI equations through time. Asides, where FDI regression equation is truly nonlinear, MSMs fit data better than the linear models. The paper adopts maximum likelihood methodology of Markov-Regime Model (MSM) to identify possible structural changes in level and/or trends and possible changes in parameters of independent variables through the transition probabilities. The results show that FDI process in Nigeria is governed by two different regimes and a shift from one regime to another regime depends on transition probabilities. The results show that the main determinants of FDI are GDP growth, macro instability, financial development, exchange rate, inflation and discount rate. This implies liberalization that stems inflation and enhance the value of domestic currency will attract more FDI into the country.

Foreign Direct Investment Inflows and Financial Development in Central and Eastern European Union Countries: A Panel Cointegration and Causality

“…On the other hand, foreign portfolio inflows had no significant impact on financial development. Therefore, FDI inflows had no significant impact on the development of financial sectors in both the short-and long-run, but financial development had significant effects on FDI inflows in CEEU countries, so our findings tend to strengthen the conclusions of Al Nasser and Gomez (2009); Korgaonkar (2012); Desbordes and Wei (2014); Bayar and Ozel (2014); Fauzel (2016); and Enisan (2017).…”

Impact of Economic Freedom and Corruption Perceptions Index on Foreign Direct Investment in Vietnam

“…The regression results of Equation (5) show that the general differential equation has statistical significance and to be in line with economic theory.…”

Determinants of FDI in France: Role of transport infrastructure, education, financial development and energy consumption

“…Nevertheless, a relatively small number of papers have examined the interaction between FDI inflows and financial development. Among others, Claessens, Demirgüç‐Kunt, and Harry (2001), Dutta and Roy (2008), Al Nasser and Gomez (2009), Abzari, Zarei, and Esfahani (2011), Korgaonkar (2012), Agbloyor, Abor, Adjasi, and Yawson (2013), Bayar and Ozel (2014), Sahin and Ege (2015), Fauzel (2016) and Enisan (2017) have examined this issue. However, the results are mixed.…”