Quality of Institutions as a Determinant of Foreign Direct Investment Inflow and Economic Growth: Recent Empirical Evidence from Nigeria.

MAJEKODUNMI, Waheed Oladipo (majeesky@gmail.com)
Department of Economics
Lagos State University, Ojo

Abstract

The inflow of foreign direct investment has been recognized in economic literature and proven by empirical studies as one of the key drivers of economic growth, especially on the heel of its roles in filling the resource gap and enabling knowledge and technology transfer in developing countries. This paper investigates the impacts of the quality of institutions and effective policy on the inflow of foreign direct investment and economic growth in Nigeria from 2012 – 2021. The study utilizes a quantitative research technique to assess how the quality of institutions in Nigeria has either enabled or hindered the inflow of FDI and economic growth. Evidence shows that the poor quality of institutions in Nigeria has bred inefficient bureaucracy, corruption, and weak governance which in turn encroach on indices of economic freedom such as legal structure and security of property rights and regulation of credit, labour, and business. Low economic freedom triggers low FDI inflow which has inhibited favourable economic growth outcomes in Nigeria. We, therefore, recommend the following policy applications, amongst others: building and strengthening effective institutions to transmit efficient information and protect property rights, improving the macroeconomic policy framework to address macroeconomic instability which distorts the policy environment, and implementing effective corruption control measures to strengthen governance and its institutions which is fundamental to the inflow of foreign direct investment and economic growth in Nigeria.

Keywords: Institutions, Foreign Direct Investment, Gross Domestic Product, Economic Freedom Indices.