The impact of major macroeconomic variables on foreign direct investment in Nigeria: evidence from a wavelet coherence t
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The impact of major macroeconomic variables on foreign direct investment in Nigeria: evidence from a wavelet coherence technique Tomiwa Sunday Adebayo1 · Kelvin Onyibor2 · Gbenga Daniel Akinsola3 Received: 8 May 2020 / Accepted: 21 October 2020 © Springer Nature Switzerland AG 2020
Abstract Utilizing Nigeria as a case study, the investigators explored the linkages between FDI inflows and some selected macroeconomic indicators (exports, gross capital formation, trade openness, inflation, and economic growth) utilizing yearly data spanning between 1981 and 2018. The study used ARDL technique to capture the linkages between FDI inflows and its determining indicators. Furthermore, the wavelet coherence techniques was used. The main novelty of wavelet coherence is that it can obtain information on dynamic correlation and/or causality between economic variables at different frequencies and different time periods. Additionally, the FMOLS and the DOLS are employed as a robustness check to the ARDL long-run estimation. The findings from the ARDL long-run estimate reveal that exports and trade openness exert positive impact on FDI inflows. The findings from the FMOLS and DOLS backed ARDL results. Furthermore, the results of the wavelet coherence-based causality and wavelet correlation techniques further provide supportive evidence to the ARDL technique. To the authors’ knowledge, no previous studies have used the wavelet coherence and wavelet correlation techniques to explore these dynamics. Based on these findings, policy directions were initiated. Keywords Foreign direct investment · Economic growth · ARDL · Wavelet correlation · Wavelet coherence · Nigeria JEL classification FS21 · F31 · F33
* Tomiwa Sunday Adebayo [email protected] Extended author information available on the last page of the article Vol.:(0123456789)
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Introduction Foreign direct investment (FDI) is an investment aimed at controlling company ownership in one nation by an organization created in another nation. Thus, the idea of direct control is differentiated from foreign portfolio investment. FDI can be utilized as a tool to support sustained development in emerging economies such as Nigeria. Therefore, a desirable and encouraging climate must be developed to attract investors and encourage this concept. As Suzana (2008) stated, FDI is the main driver of economic development and the main instrument for capital flows that exceed bank debt or portfolio equity investment. FDI inflows have several advantages, such as: technology transfer, transfer of management skills, economic growth, and foreign trade integration. While exports also contribute to foreign resources, the trend has moved to international finance through FDI inflows. This is because it is instrumental for building economic assets. Boateng et al. (2015) claimed that emerging economies rely on FDI as their main source of foreign financing. As stated by Blomström and Kokko (1998), Gokmenoglu et al. (2019), and Dunningand and Lundan (2008
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