Sectoral Analysis of Foreign Direct Investments and Balance Of Payments in Nigeria

Abstract

This study examined the effect of Foreign Direct Investments flow in agriculture, manufacturing and processing, and mining and quarrying subsectors of the Nigerian economy on Balance of Payments between 1970 and 2016. Conceptual and empirical literature were reviewed and relevant data were extracted from the annual statistical bulletin of the central Bank of Nigeria. Unit root tests were carried out using Augmented Dickey Fuller method which revealed that the variables were integrated at different orders. The autoregressive distributive lag/bound test was used to explore the long run relationship existing among the variables in our model and the result of the bound test showed that the variables in our model are co-integrated thus the study proceeded in evaluating the long run as well as the co-integrating form in the model. It was found that Foreign Direct Investments flows to these subsectors were inversely related to Balance of Payments. The study recommended that government can by the use of moral suasion; appeal to foreign investors to plough back about 70% of their earnings so as to expand their output as such expansion will invariably increase the Gross Domestic Products growth and make our balance of payments favourable; Tax holidays should be granted to investors in Agriculture and Manufacturing and Processing sectors so as to encourage Foreign Direct Investments inflow to these sub-sectors which will no doubt stimulate growth, create more jobs and make more commodities available.