The Effect of Aggregate Institutional Quality on Foreign Direct Investment in Nigeria: Evidence From Nardl

Abstract

The vital role of foreign direct investment has been widely studied and documented in the economic literature; however, the argument remains largely on identifying the main determinants of FDI to developing countries. It is on this note, the quantitative research method was adopted to investigates the asymmetric relationship between aggregate institutional quality and foreign direct investment in Nigeria using the Nonlinear Autoregressive Distributive Lag (NARDL) model on quarterly time-series data from 1999 Q1 – 2019 Q4. The bounds test obtains revealed that long-run co-integrating relationship exist among the variables. The NARDL result shows that both in the short-run and long-run aggregate institutional quality have asymmetric and a statistically significant effect on foreign direct investment. The study recommends that the government should establish or strengthen the quality of institutional indicators and legal framework to assure confidence in the system to motivate Foreign Direct Investment (FDI) inflow.