Impact of Infrastructure on Foreign Direct Investment in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach

Abstract

This study examines the roles infrastructure play in attracting foreign direct investment (FDI) into Nigeria for the period between 1981 and 2014. It also investigates the type of infrastructure that has more impact on FDI attraction. The unit root test results show that none of the variables in the study is integrated of order two, that is, I(2), a condition which justifies the use of Autoregressive Distribution Lag (ARDL) framework. The ARDL Bounds Test approach to cointegration was employed to determine the long-run relationship among the variables in our model and the result shows that there is a long-run relationship between infrastructure and FDI in Nigeria. The result of the estimation of the selected ARDL Error Correction Model shows that none of the infrastructure variables (tractor, telephone lines and electricity) employed in this study is significant to attract FDI into Nigeria in the short-run although electricity production (power supply) was found to influence FDI in the long-run. The study thus recommends that the power sector be revitalized and should be given priority as it will attract FDI, increase national output and move Nigeria closer to actualizing her dream of becoming one of the twenty leading economies in the world by the year 2020.

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