AN EMPIRICAL ANALYSIS OF INSTITUTIONAL QUALITY AND FOREIGN DIRECT INVESTMENT INFLOWS IN NIGERIA

Abstract

This study investigated the relationship between the measures of institutional quality provided by the World Bank, World Governance Indicators and foreign direct investment inflows in Nigeria. The study used time-series data covering the period between 1996 and 2019. We sourced the data from the World Bank, World Development Indicators and World Governance Indicators databases. The measures of institutional quality used along with other selected control variables include voice and accountability, government effectiveness, rule of law, regulatory quality, control of corruption, political stability and the composite of these six variables. In order to control for endogeneity problem, we employed generalized method of moments (GMM) estimation for this study. The empirical results from GMM show that the composite institutional index, control of corruption, voice and accountability, government effectiveness, rule of law, and regulatory quality has a positive and insignificant effect on foreign direct investment inflows into Nigeria, while political stability has a negative and insignificant effect on foreign direct investment inflows. In light of these findings, this study concluded that the amount of foreign direct investment inflows into Nigeria reflect the poor institutional quality prevalent in Nigeria. This study therefore recommended that the Nigerian government should intensify measures to improve the institutional quality of Nigeria.