Institutional Quality, Foreign Direct Investment, and Nigeria’s Economic Development

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Date

2023-12

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Publisher

Lead City University

Abstract

The need for developing nations to thrive and become prosperous is at the heart of the sustainable development goals. Attaining a developed economy status has eluded many African countries including Nigeria. This is evidence in the infrastructural deficit, weak currency, socioeconomic and political instability, high poverty and alarming insecurity rate. This development has raised a lot of concern and has prompted reasons to query the country institutional quality and foreign direct investment as contingent factors that can address the nation’s economic development. Hence, on the tenets of the institutional theory and the resource based-view, this study examined the effect of institutional quality and foreign direct investment on economic development in Nigeria. The study adopted the Expo facto research design to achieved the aim of the study. The population represent data from all sectors in Nigeria economy from 1990 to 2022. Dynamic ordinary least square regression analysis was used to test the hypotheses formulated. The findings suggested that FDI has an insignificant effect on GDP per capita and HDI as a measure of economic development (ꞵ=-1.129, p=0.534). FDI exert significant effect on IHDI as a measure of economic development (ꞵ=-0.013, p=0.023). Institutional quality has an insignificant effect on GDP per capita and IHDI as a measure of economic development (ꞵ=-0.092, p=0.088). However, institutional quality exerts significant effect on HDI as a measure of economic development (ꞵ=-0.011, p=0.028). Institutional quality exerts a positive and significant effect on FDI (ꞵ=-0.467, p=0.001). Institutional quality and FDI have an insignificant influence on GDP per capita and HDI as a measure of economic development (ꞵ=-0.004, p=0.335). However, institutional quality and FDI has significant influence on IHDI as a measure of economic development in Nigeria (ꞵ=0.009, p=0.000). The study concluded that institutional quality and FDI are critical to Nigeria’s economic development when harnessed judiciously. Based on the study findings, the following recommendations were made: evidence of control of corruption should be made a top priority by the federal government of Nigeria, likewise ensuring political stability & absence of violence/terrorism through transparent democratic process, and government effectiveness in the outcomes of policy formulation and implementation. It is imperative for the federal government to address the many macro-economic factors including inflation, unemployment, ease of doing business to socio-economic factors such as banditry, kidnapping, and insurgency, hence affecting the sentiments of foreign investors towards the economy. It is expected that if this is done, Nigeria will be investment destination in Sub-Sahara Africa. The federal government in Nigeria should commit resources financially and otherwise to be seen as a nation with positive institutional quality attributes. This is because foreign investors have reservation for countries without stable political leadership, fluctuating economic policies, violation of human right, violence and terrorism, high-level corruption index and ease of doing business challenges. Federal government should show commitment to developing positive institutional quality and they should enhance environmental conditions that favour FDI. This is critical in attainment of GDP per capita and HDI as measures of Nigeria’s economic development. Keywords: Economic development, Foreign direct investment, Institutional quality, Nigeria Word Count:492

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Keywords

Economic development, Foreign direct investment, Institutional quality, Nigeria

Citation

Kate Turabian