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Do Regulatory Quality, Government Effectiveness and Rule of Law Matter to Foreign Direct Investment in Nigeria?

Hassan O. Ozekhome ()
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Hassan O. Ozekhome: Department of Economics, Samuel Adegboyega University, Ogwa- Edo State, Nigeria.

Journal for Economic Forecasting, 2022, issue 1, 160-175

Abstract: A strong institutional framework, which embeds rule of law, regulatory quality and government effectiveness, is critical to foreign direct investment drive. In general, the effectiveness and predictability of the judiciary, quality of contract enforcements, including property rights, government effectiveness, regulatory framework, stability of the political system, as well as macroeconomic environment are indispensable to private enterprise and foreign direct investment inflows in resource-scarce countries, necessitating this study. Employing the Generalized Method of Moments (GMM) estimation techniques on annual time series data covering the period from 1970 to 2020 and the Fully Modified OLS (FMOLS) and Dynamic OLS (DOLS) for robustness check, the empirical findings show that regulatory quality, government effectiveness and rule of law matter to FDI inflows in Nigeria. Political stability and exchange rate are positively related to FDI, although the effects are not significant. Infrastructure development (measured by ICT) has a significant impact on FDI, while Inflation rate (a proxy for macroeconomic policy environment) and control of corruption are negatively related to FDI inflows. Based on the foregoing findings, it is important that sound regulatory framework and government effectiveness be developed, in addition to an efficient legal framework that support FDI inflows. Increased investment in critical infrastructure, stable political and macroeconomic environments and a competitive exchange rate are other important ways of promoting foreign direct investment inflows in Nigeria

Keywords: institutions; regulatory quality; enforceability of contracts; macroeconomic policy; GMM (search for similar items in EconPapers)
JEL-codes: C13 D02 D72 F21 (search for similar items in EconPapers)
Date: 2022
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Handle: RePEc:rjr:romjef:v::y:2022:i:1:p:160-175