Uncertainty and Foreign Direct Investment: A Case of the Manufacturing Subsector in Nigeria

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Oluseye, S.A
Abimbola, O
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Oluseye. S.A, Abimbola, O (2016), Uncertainty and Foreign Direct Investment: A Case of the Manufacturing Subsector in Nigeria. Nigeria's Industrial Development, Corporate Governance and Public Policy, p. 523-544.
Manufacturing sector remains critically important to both the developing and the advanced economies. It is an avenue for increasing productivity in relation to import replacement and export expansion, creating foreign exchange earning capacity, rising employment and per capita income. This study examined the effects of economic and political uncertainties on FDI inflows to the manufacturing sub-sector of the Nigerian economy covering the period 1970 to 2010. Using Error Correction Mechanism (ECM), the model, which incorporates the cost of capital (real lending rate), inflation volatility and exchange rate variability as measures of economic uncertainty, together with political instability as regressors, was estimated. The most preferred estimates were established using the Schwarz and Akaike information criteria. Prior to the estimations, the stationarity conditions of each of the variables were ascertained using the Augmented Dickey Fuller (ADF) tests, while the Johansen method was used to determine co integrating vectors. The results show that FDI into the manufacturing sub-sector of the economy exhibits no tolerance for inflation volatility (INFVL), that government commitment to the Multinational Investment Guarantee Agency (MlGA) needs to be reinforced, reducing the real cost of capital (RLR), diversifying the economy to boost export (REXPO). Further, positioning the economy for tourism (RINTOUE) will go a long way to attract foreign direct investment into the manufacturing sub-sector of the Nigerian economy. The study concludes by suggesting that maintenance of a stable macroeconomic environment and appropriate policy mix is essential if the Nigerian manufacturing sector is to benefit from globalisation.
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Manufacturing Sector , Investment