Determinants of Foreign Direct Investment in Emerging Markets: Evidence from Nigeria

In this paper, we examine the determinants of the flow of Foreign Direct Investment (FDI) to Nigeria. Specifically, we investigate the effects of exchange rate volatility on FDI flows while controlling for macroeconomic factors. We first conducted Dickey-Fuller unit roots tests for our time-series data to determine any trend elements in the sample data. We then conducted Johansen cointegration test for the long run relationships among the determinants of the FDI in emerging markets. Our findings show that a significant long-run relationship exists between FDI and exchange rate volatility. Using Vector Error Correction regression model (VECM), we find that exchange rate volatility has statistically significant negative impacts on the flow of FDI to Nigeria. We also find that market size, exchange rate, infrastructural development, and world commodity prices have positive and statistically significant impacts on the FDI flow to Africa.