Shadow economy and foreign direct investment in Nigerian manufacturing industry

Folorunsho Monsuru Ajide, James Dada and Johnson Kolawole Olowookere

International Journal of Economics and Business Research, 2022, vol. 23, issue 2, 156-180

Abstract: In this paper, we investigate the symmetric and asymmetric effect of shadow economy on foreign direct investment (FDI) in Nigerian manufacturing sector using ARDL and NARDL estimation techniques for the period of 1975-2017. We find that an increase in shadow economy reduces FDI net inflow in the short run while this relationship turns to be positive in the long run. This result persists after using NARDL to re-estimate the model. Negative and positive changes in the size of shadow economy have negative and significant effects on FDI in the short run, while in the long run both changes have positive effects on FDI in the sector. The results imply that in the short run, new foreign investors would like to operate in the formal sector due to tax incentives and other financial incentives available for new entrants. However, in the long run, shadow economy attracts FDI, because incentives enjoyed have expired coupled with high cost of doing business in the country. The investors would prefer to either look for loopholes in tax laws or attempt to evade tax and cut down official remittances to the government by operating in the informal sector of the economy.

Keywords: informality; tax; foreign direct investment; FDI; NARDL; Nigeria. (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.inderscience.com/link.php?id=120646 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:23:y:2022:i:2:p:156-180

Access Statistics for this article

More articles in International Journal of Economics and Business Research from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().