Impact of political stability on foreign direct investment

Evidence from Nigeria

Abstract

Foreign direct investment is considered as a major driver of economic growth. FDI is seen as the acquisition of 10% or more of foreign company and its attraction depend largely on the stability of the political environment in the host country.  The paper therefore examined the impact of political stability on foreign direct investment in Nigeria. The study employed a set of macroeconomic variables as independent variables and used annual time series data from 1970Q1 to 2015Q4 sourced from Central Bank of Nigeria Statistical Bulletin. The model of the study for analysis of its data was estimated with ordinary least squares (OLS) method and the empirical result from the Auto Regressive Distributed Lag (ARDL).  Both R-squared and Adjusted R-squared stood at approximately 0.99  which shows that the explanatory variables exchange rate, quarterly inflation rate, interest rate and political stability explained about 97% variation in the dependent variable (foreign direct investment). This implies that political stability in line with other variables of interest impacts significantly on foreign direct investment in Nigeria.