Effect of Foreign Direct Investment on Government Capital Expenditure in Nigeria

Abstract

Research Purpose: This study examines the impact of foreign direct investment (FDI) inflows, FDI outflows, and remittance inflows on total government capital expenditure in Nigeria over a 54-year period from 1970 to 2023.

Methodology: An ex-post-facto research design was adopted, utilizing data from the World Bank Database and the Central Bank of Nigeria (CBN) Statistical Bulletin. The analysis was conducted using Auto-Regressive Distributed Lag (ARDL) models and ARDL cointegration models to understand both short-run and long-run dynamics.

Findings: The results indicated that individually, none of the explanatory variables—FDI inflows, FDI outflows, and remittance inflows—had a significant effect on total government capital expenditure at the 5% significance level in both the short and long runs. Specifically:

• FDI outflows exerted a negative influence (coeff. = -0.601, std. error = 2.034, t-stat = -0.295, p-value = 0.769).
• FDI inflows showed a positive but non-significant influence (coeff. = 0.127, std. error = 0.880, t-stat = 0.144, p-value = 0.886).
• Remittance inflows also showed a positive but non-significant influence (coeff. = 0.308, std. error = 0.674, t-stat = 0.458, p-value = 0.650).

The short-run error correction term (CointEq(-1)) was found to be statistically significant (coeff. = -0.302, p-value = 0.020), indicating that 30.2% of the short-run deviation from the long-run equilibrium is corrected each year.

Recommendations: To enhance the impact of FDI inflows and remittance inflows on government capital expenditure, it is recommended to improve the operating environment and create channels that facilitate significant increases in these financial flows.