THE ROLE OF INSTITUTIONAL QUALITY IN FOREIGN DIRECT INVESTMENT INFLOWS IN NIGERIA

Abstract

The study examined the role of institutional quality in foreign direct investment inflows in Nigeria over the period 1996 to 2024. The specific objectives of the study were to find out whether control of corruption (COC), government effectiveness (GOE), political stability (PST), regulatory quality (REQ), and rule of law (ROL) significantly affect foreign direct investment (FDI) in Nigeria. To this end, the fully modified least square (FMOLS) econometric analysis was utilized in the analysis of data. The results obtained revealed that control of corruption (COC) and regulatory quality (REQ) are significantly and positively related to FDI; political stability (PST) and rule of law (ROL) had significant inverse effect on FDI; while regulatory quality (REQ) had a weak inverse relationship with FDI inflow. Based on these outcome, the study concluded that, in the determination of FDI inflow in Nigeria, regulatory quality factors such as control of corruption, regulatory quality, political stability (PST) and rule of law are potent drivers that should be seriously handled by the government and relevant policy makers in the country. The study recommends among others that, the Nigerian government should prioritize regulatory quality by improving the clarity, consistency, and fairness of regulations to reduce uncertainty and costs for foreign investors. This steps will constantly make the domestic economy to be more attractive to foreign investors, ultimately increase FDI inflows.