Macroeconomic Variables and Foreign Direct Investment (FDI) Inflows in the Nigerian Construction Sector
Abstract
The inconsistence of the macroeconomic variables performance and the low gross domestic savings can be attributed to the low infrastructure development in Nigeria. To reduce the problem of poor infrastructure development in Nigeria, capital must be mobilized from the high income countries to increase the present low gross domestic savings. The aim of this study is to investigate the influence of macroeconomic variables on FDI inflows in the Nigerian construction sector. The methodology adopted for this study was an ex-post facto survey research because it was based on existing or secondary data. Annual time series data of the FDI inflows in the Nigerian construction sector, Foreign exchange rates, inflation rates, and interest rates were used. Archive materials from Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS), annual data from 1990 to 2016 were used for analysis. The variables for this study were tested for stationarity. The unit root test results revealed that the variables were non-stationary at levels but they attained stationarity at first difference. The regression analysis of Ordinary Least Square (OLS) method was used to analyse the data. The result revealed that exchange rate has positive impact but not significant. The result also indicated that interest rate and inflation rate have negative impact on FDI inflows but not significant respectively. Johansen Co-integrated test conducted revealed that there existed a long-run relationship among the variables in the study. The study also established from the Johansen Co-integrated test that FDI and construction sector is significantly co-integrated, indicating a valid relationship at 5%. The result from the OLS model indicated that causality that exists between FDI and the construction sector is bi-directional. Hence construction sector influence FDI inflows as well as FDI inflows influence construction sector in Nigeria. The causality between FDI and the construction sector should encourage policy decisions that will improve the FDI inflows, which by extension would translate to boosting the construction industry’s opportunity to meet infrastructure deficit.
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