Impact of Insecurity on Foreign Direct Investment in Nigeria: An Empirical Analysis

Abstract

In the last decade, the character of insecurity in Nigeria has continued to attract attention from diverse quarters. Characterised by factors such as kidnapping, ethnic militancy, youth violence and terrorist attacks on corporate and government properties, the increasing incidence of insecurity in Nigeria has caused the country inestimable economic losses. Despite the weighty effects of the phenomenon of insecurity on the developmental process, literature has not adequately captured the impact of the insecurity problem on foreign direct investment in Nigeria. This study critically discusses the impact of Insecurity on Foreign Direct Investment (FDI) inflows in Nigeria. The variables used in this research are FDI inflow, government expenditure on internal security, population growth rate, and GDP per capita. This study covered the period from 1994 to 2010. Ordinary Least Square of Multiple Regression was used while vector error correction mechanism was employed to determine the short-run and long-run relationship among the variables. The study found insecurity to have a negative and significant impact on FDI both in the short run and long run. GDP per capita, used to proxy the market size, has a positive and significant impact on FDI while population has a negative and insignificant effect on FDI. The implication of this result is that the expenditure on security does not get to the required security agents, and it is not channelled properly to provide efficient security for foreign investors in Nigeria. The study therefore recommends that efforts should be geared towards extending the budgeted income to security personnel and the decentralisation of police for increased efficiency.