The Measures Of Variables

Published Date: 02 Nov 2017

3.1 INTRODUCTION

According to Kumar (2011,p.5) ‘Research methodology is a way to systematically solve the research problem, and it may also be understood as a science of studying how research is done scientifically. This study uses data from Secondary sources. Secondary sources of research are Information that is removed from primary sources, examined, interpreted and rephrased (Solomon, et al., 2011,p.39), the secondary sources are obtained from books, articles, and other publications. Secondary sources are employed by researchers to structure the design of research Question, hypothesis for a debate and to reach a conclusion (Wayne.C.Booth, et al., 2008). The choice of this method is as result of the subject matter and the aims in question, which is to evaluate the fiscal policy regulations in Nigeria; to review the impact of tax policy/tax rate on foreign direct investment in the Nigerian economy and to examine the relationship between fiscal policy and FDI in line with economic growth.

The main aim centers on finding out the role of fiscal policy in the attraction of foreign direct investment in Nigeria. This study will investigate and attempt to answer these questions; to what extent does the level of corporation tax and government spending influences the degree of FDI into the Nigeria Economy? And In what ways does FDI influence positively or negatively on the development of the Nigerian economy. All these cannot be feasible without the secondary data, because it is historical in nature and the major advantages of using secondary data is that it provides the use of a comparative tool for this study and also provides a useful starting point for additional research by suggesting problem formulation and research hypotheses and research method (Stewart and Kamins, 1992,p.5) One benefit of using secondary data is cost effective and a disadvantage is that it is time-consuming, the reason is that more time is required to read and study books, journals. It could also be used when primary data is not appropriate in the research or available.

3.2 SOURCES OF DATA

Data for this purpose has been obtained from secondary sources which includes; CBN Annual Report, CBN Statistical Bulletin, journal, articles and textbooks as well as the Internet. These records are Anecdotal which implies that the information obtained are brief and focused, accurate in description of the situation recorded an annually and immediately after the observation at different times and during different activities of the year in the country in order to develop a complete profile of records of activities regularly and to be sure that comments are made for each figure. Annual time‐series data on the variables under study covering twenty years period 1992‐2011 are used in this study for estimation of functions. Foreign Direct Investment inflow (FDI), Government Expenditure (GE) and company income tax are the relevant explanatory variables. Equally, The Gross Domestic Product is the quantitative variable that measures economic performance of a country.

3.3 RESEARCH DESIGN

The research design used is systematic in nature, which focuses on the research aims, objectives and question that attempts to ascertain, evaluate and group the research evidence relevant to that question (Bryman & Emma, 2007). The researcher made use of quantitative and quantitative research. Marczyk,et al.,(2010) describes a qualitative research as one that involves using statistical analysis to obtain findings while qualitative research involves using statistical summary or analyses to explain or figure out the results (Marczyk, et al., 2010). This study sketched a table to assess the content of the CBN bulletin and annual reports to establish the position of fiscal policy in attracting FDI in Nigeria.

3.4 SAMPLE PROCEDURE

Data span is for 20years (1991-2011) and an annual basis were used. These were sourced from the central bank of Nigeria statistical bulletin 2008, 2009 and 2010; the World Fact Book 2002 and United Nation’s Conference on Trade and Development (UNCTAD) various issues from 1996-2009 and the CBN Publications provide the Corporate Tax Rates of Nigeria in the study.

3.5 MEASURES OF VARIABLES

The three variables involved in this study are fiscal policy and foreign direct investment linked with economic growth, where foreign direct investment is dependent variable and fiscal policy, independent variable. Fiscal policy is divided into two; corporate income tax and Government spending.

The dependent variable FDI can be measured in quantitative terms. On the other hand, fiscal policy is an independent variable and it can be influenced by Gross Domestic Product (GDP), Public Expenditure (PE) and Tax Rate. This is to determine whether any significant relationship exist between the variables or not.

3.6 DATA ANALYSIS TECHNIQUE

The technique used in this study to determine the role of fiscal policy in attracting foreign direct investment in Nigeria includes; the ordinary least square (OLS) regression and more specifically the multiple regression technique will be employed to identify the effect of changes in the explanatory variables on the dependent variable. The R2 test, T-test, F-test and descriptive statistics, will equally be employed in this work.

However, due to the deviations of the variables, Gross Domestic Product (GDP), Company Income Tax (CIT) and Public Expenditure (PE), the relationship of each variable depicts a random effect. Therefore we adopted the random effect model of the panel data regression analysis in analyzing the impact of the fiscal policy on the attraction of foreign direct investment in Nigeria.

3.7 MODEL SPECIFICATION

For this study, the model used to access the role of fiscal policy in attracting foreign direct investment in Nigeria (1991-2011) is Random Effect (RE) Model. Basically, The RE technique is employed in studies where the variable in the study is drawn from a large population, but we have streamlined the search to specifically 20years. A random effect model was selected for two reasons. First, there is an explanatory variable that is constant over time. We cannot include such variable in a fixed effect model (Wooldridge, 2000, p. 442). And secondly, the Haussmann test supports use of a random effect model (Cameron & Trivedi, 2005,p.271). Hence following (Adereti, et al., 2011), (Nkoro, 2012) and (Schoeman, et al., 2000) a random effect is employed to the study on the impact of Fiscal policy on the FDI and economic development.

The model could be specified as follows:

FDI = Æ’ (GDP, TAX RATE, PE) [1] 

The econometric form becomes:

FDI t =βο + β1 GDP + β2 TAX RATEt + β3 PEt+ ε t; Apriori β1 >0, β2 >0, β3 >0

The coefficient [2] Î²Î¿, β1, β2 , β3 are to be estimated, and they are decided by the elasticity since they measure the impact of a unit change in each of the variable on fiscal policy.

The econometric model is such that: β1 GDPt, ,β2 TAX RATEt ,β3 PEt > 0. The implication of this is that a positive relationship is expected between explanatory variables (β1 GDPt, β2 TAX RATEt and, β3 PEt t) and the dependent variable. The size of the coefficient of correlation will help us explain various levels of relationship between the explanatory variables.

This theoretical model looks at investments (FDI) from the firms’ perspective. We expect a positive relationship between a country’s success in attracting FDI inflows (the dependent variable) and increases in FDI inflows. Higher taxes on the other hand, holding all factors constant, should reduce a country’s ability to attract FDI.

CHAPTER FOUR

4.0 DATA PRESENTATION AND ANALYSIS

4.1 INTRODUCTION

This study is centered on investigating into the role of fiscal policy in attracting foreign direct investment in Nigeria. In this chapter, the relevant data for the dependent and independent variables are represented. Data for this purpose has been obtained from secondary sources which include the CBN Annual Report, CBN Statistical Bulletin for different years, journal, articles and textbooks as well as the Internet. Based on the major objectives of this study which involves finding out the level of fiscal policy (corporation tax and government spending) in attracting FDI into the Nigeria Economy, the ordinary least square (OLS) regression and more specifically the multiple regression technique will be employed to identify to the effect of changes in the explanatory variables on the dependent variable. In correlation with Schoeman, et al., (2000) on the study of FDI and the fiscal discipline in south africa where the secondary data were sourced from the south africa reserve bank, December 1999. The study employed the engle and yoo three step approach which makes it different from the method employed in this study. The objective of the study was to ascertain the impact of tax rate on FDI in south africa and to attain the effect of the return on investment in south africa. The R2 test, T-test and F-test will equally be employed in this work.

Tables, figures and graphs are used to present the secondary data, illustrating the frequency distributions for a clearer understanding. This chapter provides the aims and objectives, solutions to research questions stated in chapter 1. Descriptive statistics and inferential statistics analysis were used to describe the data. Mendenhall, et al., (2012, p.4-5) ‘Describes a descriptive statistics involves techniques used to summarize and explain important features of a set of variables’. While the inferential statistics is an analytical technique used to draw conclusion and make predictions on the information gathered from the sample. The disadvantage of the descriptive statistical method is that it is time consuming (Mendenhall, et al., 2012). The mean, median, range, skewness etc. are examples of the descriptive statistics, while the Pearson correlation, the panel data regression analysis and the t-test are examples of the inferential statistics. The Pearson correlation measures the degree of relationship that exist between variables, the regression assesses the impact of the fiscal policy variables on foreign direct investment.

The estimated results are also presented systematically and analyzed according to the specified multiple regression models as shown in the preceding chapter. All data collected for this study are analyzed using the ordinary least square (OLS) as already stated in chapter three. Data for the variables are presented in the table1 below.

4.2 DATA PRESENTATION

In examining the extent of the role of fiscal policy in attracting foreign direct investment to Nigerian economy. Issues on fiscal policy were analyzed in different categories as shown in the table below, The Gross Domestic Product (GDP), Company Income Tax (CITR) and Public Expenditure (PE) were provided in order to ascertain what effect they would have on Foreign Direct Investment (FDI). Table 1 provides data for Foreign Direct Investment (FDI), Gross Domestic Product (GDP), Company Income Tax (CITR) and Public Expenditure (PE) from 1992-2011.

On the whole, the CBN bulletin sets on the statistical fact sheet of the Nigerian economy indicates that the Nigeria economy has grown out of recession to the path of recovery. Nigeria received its independence from Britain in 1960 and became a Republic in 1963. Shortly thereafter a civil war began in 1966 and lasted four years (world fact book, 2002). The political life of Nigeria is reflected in the succession of its leaders since independence. Nigeria’s population of 129 million people makes it the largest country in Africa in terms of population size. With an annual growth of 2.54%, Nigeria records the highest population growth rates in the world. Nigeria relies almost entirely on oil to run its economy; the capital-intensive oil sector provides 20% of GDP, 95% of foreign exchange earnings, and 65% of its budgetary revenues (World Fact book, 2012).

The government continues to formulate fiscal policies that are designed to increase the level of government revenues and to promote overall economic development, but its individual tax revenue base has largely remained untapped. Corporate taxpayers are required to pay taxes through banks to the Federal Inland Revenues Service — the equivalent of the IRS in the U.S.

Table : Foreign Direct Investment (FDI), Gross Domestic Product (GDP), Company Income Tax (CIT) and Public Expenditures (PE) all in Naira Billions

Year

FDI in N’bn

GDP in N’bn

CIT in N’bn

PE in N’bn

1992

3,023.22

532,613.83

5,417.20

66,584.40

1993

3,944.71

683,869.79

9,554.10

92,797.40

1994

1,882.71

899,863.22

12,274.80

160,893.20

1995

3,721.85

1,933,211.55

21,878.30

248,768.10

1996

42,189.27

2,702,719.13

22,000.00

337,217.60

1997

3,857.62

2,801,972.58

26,000.00

428,215.20

1998

2,564.16

2,708,430.86

33,300.00

487,113.40

1999

2,763.16

3,194,014.97

46,200.00

947,690.00

2000

2,955.09

4,582,127.29

51,500.00

701.10

2001

3,102.9

4,725,086.00

68,700.00

1,018.00

2002

4,368.37

6,912,318.25

89,100.00

1,018.20

2003

178,478.60

8,487,031.57

114,800.00

1,226.00

2004

249,220.60

11,411,066.91

113,000.00

1,426.20

2005

324,656.00

14,572,239.12

140,300.00

1,822.10

2006

481,239.10

18,564,594.73

244,900.00

1,938.00

2007

345,302.00

20,657,317.67

276,300.00

2,450.90

2008

544,321.00

24,296,329.29

285,600.00

6,337.90

2009

664,321.00

24,794,238.66

331,000.00

6,454.50

2010

733,763.00

29,205,782.96

367,340.00

7,635.90

2011

873,553.00

33,452,075.54

441,200.00

10,476.78

Source: CBN bulletin for various years

Table : DESCRIPTIVE STATISTICS

Sample: 1992 -2011

FDI

GDP

CITR

PE

Mean

223461.4

10855845

135018.2

140589.2

Median

23278.82

5818702.

78900.00

7045.200

Maximum

873553.0

33452076

441200.0

947690.0

Minimum

1882.710

532613.8

5417.200

701.1000

Std. Dev.

289508.7

10600776

137370.0

244761.9

Skewness

0.964585

0.808956

0.904063

2.093867

Kurtosis

2.556348

2.260869

2.443010

6.969770

Observations

20

20

20

20

Source: Researcher’s Computation using Econometric Views (E-Views) 3.1

From the data presented in table 4.1, it is observed that FDI then to moved gradually from 1992 up to 2002 in a very slow pace but it rose geometrically from 2002 to 2011. GDP has been on a steady increase from 1992 to 2011, and its highest peak of 33,452,075.54, PE has a minimum value of 701.1 in 2000, but has fluctuated over time. The corporate income tax has a maintained a steady increase over the years. The mean value for public expenditure is 140589.2 this reveal on the average how much the Government spent on developing the country in 20 years, with standard deviation of approximately 244,762. The table further revealed that on average, the sample generates Foreign Direct Investment (FDI) of about 223,461.4. The maximum and minimum values of FDI are 1882.710 and 873,553.0 respectively. The average tax collected for 20 years is 135,018.2.

For the model, the average GDP from the 20 observations is about 10,855,845 suggesting that Nigeria have relatively moderate Gross Domestic Product (GDP) with a maximum value of (33,452,076) and standard deviation of 10,600,776. The implication is clear that GDP in Nigeria is encouraging to a large extent when reviewed.

4.4 DATA ANALYSIS (INFERENTIAL ANALYSIS)

Under this analysis, the correlation analysis was first used to measure the degree of relationship between different variables. The regression analysis determined the impact of the fiscal policy variables on foreign direct investment; the t- test statistics ascertained the significant relationship between foreign direct investment and gross domestic product. Finally, the t-test statistics was also used to depict if a significant difference occurred between gross domestic product and fiscal policy variables which are CITR and PE.

4.4.1 PEARSON’S CORRELATION COEFFICIENT ANALYSIS

This section measures the degree of relationship between our Fiscal policy variables and FDI as an independent variable i.e. if the fiscal policy proxies (gross domestic product, company income tax rate and public expenditure) will increase foreign direct investment. From the model, a positive relationship is expected between the measures of fiscal policy and growth variable (FDI) is presumed.

Table : Pearson’s Correlation Coefficients Matrix for the Model

FDI

GDP

CITR

PE

FDI

1.000000

0.980945

0.974676

-0.431785

GDP

0.980945

1.000000

0.993566

-0.452340

CITR

0.974676

0.993566

1.000000

-0.436952

PE

-0.431785

-0.452340

-0.436952

1.000000

** Correlation is significant at the 0.01 level (2-tailed).

Source: computed by researcher using Econometric Views (E-Views) 3.1

The correlation result for the model in table 3 reveals that GDP has a strong positive correlation of 0.981 with foreign direct investment which is significant at 1% and 5%. This indicates that the large sizes of gross domestic product (GDP) have a positive effect on the level of FDI in Nigeria. This also suggests that an increase in the GDP will lead to an increase in the Growth of Foreign Direct Investment. In the same way, it was observed from the correlation result for CITR that, the amount of company income tax has a positive correlation of 0.974676 with foreign direct investment (FDI).

The percentage of Public expenditure (PE) shows a negative correlation coefficient (r) of -0.431785 for the model with the p-value of 1.000 which is significant at 1%, 5% and 10%. This implies that increased level of public expenditure results in the decreased growth of the Economy in terms of FDI. This is however in conjunction with (Goodspeed, et al., 2006,p.6-28) which show that a ‘better infrastructure attract FDI and excessive Government consumption expenditures negatively impact FDI inflows. Manh & Suruga, (2005) also argue that excessive spending on government capital expenditure has a negative effect on the FDI, In otherwords,it has decrease the inflow of FDI. Moreso, public expenditure is negatively correlated at -0.452340 and -0.436952 with GDP and CITR respectively. This is also seen to be significant at 1%. This further indicates that public expenditure’s relationship with other variables GDP and CITR are insignificant and move in opposite directions. Among the fiscal policy variables, GDP recorded a positive correlation with CITR, but has a negative correlation with PE. This is further explained to mean that increased GDP will result into corresponding increase in CITR while Public expenditure (PE) increase will result into a decrease or decline in GDP.

4.5 REGRESSION ANALYSIS

In this section, we used the panel data regression analysis to investigate into the role of fiscal policy on the attraction of foreign direct investment. In doing this, we used a model to explain the variable which is stated in chapter three. Using data from 1992 to 2011, the result of the regression estimate are presented and analyzed for useful inference. The ordinary least square (OLS) estimate for Gross Domestic Product (GDP), Company Income Tax (CIT) and Public Expenditure (PE) on Foreign Direct Investment (FDI) is reported in the table 4.4 below

Model: FDI t =βο +β1 GDP+β2 CITRt + β3 PEt + Σt

Table : Ordinary least square regression result for GDP, CITR and PE on Foreign Direct Investment (FDI)

Dependent Variable: FDI

Method: Least Squares

Date: 12/17/12 Time: 22:00

Sample: 1992 - 2011

Included observations: 20

Variable

Coefficient

Std. Error

t-Statistic

Prob.

C

-72040.86

26458.06

-2.722832

0.0151

GDP

0.027289

0.011876

2.297883

0.0354

CITR

-0.024196

0.908655

-0.026628

0.9791

PE

0.017963

0.064760

0.277373

0.7850

R-squared

0.962433

Mean dependent var

223461.4

Adjusted R-squared

0.955389

S.D. dependent var

289508.7

S.E. of regression

61147.80

Akaike info criterion

25.05683

Sum squared resid

5.98E+10

Schwarz criterion

25.25598

Log likelihood

-246.5683

F-statistic

136.6358

Durbin-Watson stat

1.485968

Prob(F-statistic)

0.000000

Note: t- statistics, significant at 10% level, significant at 5%, at 1%

Source: Researcher’s Computation using Econometric Views (E-Views) 3.1

R2 = 0.9624, Adjusted R2 = 0.9554

F – Statistics =136.635

Prob (F– Statistics) = 0.0000

Estimated model

FDI = -72040.86 + 0.027289GDP - 0.024196CITR+ 0.017963PE

t = (-2.722) (2.297) (-0.0266) (0.277)

From the results clearly stated above, is the estimated model showing the empirical relationship between the dependent variable and the independent variables.

From the t-statistics, it was discovered that a unit increase in GDP (Gross domestic product) will result in 22.97 percent increase in FDI. It was also discovered that a unit increase in CITR (Company Income Tax Rate) will cause a 2.67% Decline in FDI and on the other hand, a unit increase in Public Expenditure (PE) result into in 27.73% increase in FDI.

4.5.1 REGRESSION RESULT (ON FDI)

The two main issues identified at the beginning of this study are tested in this chapter: (a) to determine the role of fiscal policy on the attraction of foreign direct investment, and (b) to examine the flow of FDI, its impact on the growth of the economy including identifying the factors that contribute to the country’s long-run FDI growth. The results of this study are not intended to show causal effects. R-squared (R2) measures the amount of variation in the dependent variable that is explained by variations in the independent variables. This empirical testing is, therefore, to see how much the independent variables have assisted in predicting FDI, the dependent variable. In the hypothesis developed, we expected Gross Domestic Product (GDP) and Public Expenditure (PE) to be positively related to FDI, and the corporate tax rate (CITR) to be in a negative relationship

4.6 ADDRESSING THE RESEARCH QUESTION

Research Question one

How effective have the Fiscal policy (corporation tax (high/low) and government spending) measures so far adopted towards boosting foreign direct investment in Nigeria?

There exist a significant relationship between foreign direct investment (FDI) and a high company income tax rate (CITR) during the periods (1992 -2011) under study.

From the result of the regression displayed both in the appendix and in table 1 shows that the parameter estimate (b2) Company Income Tax Rate (CITR) is not statistically significant at 5 percent level as the t-statistics calculated at -0.0267 which is less than the tabulated t-value at (2.0281) therefore there exist no significant relationship between foreign direct investment (FDI) and a high company income tax rate (CITR) during the periods (1992 -2011) under study. The higher the tax rate (measured by the corporate tax rate), the less attractive a host country is to the multinational firms as taxes cut directly into their profits. This means that the level of corporate tax has an effect on FDI; hence a negative effect is expected on the FDI.

Research Question 1b (FDI AND PE)

There is no significant relationship between Foreign Direct Investment (FDI) and Public Expenditure (PE) during the period (1992-2011) under study.

From the result of the regression, the parameter estimate (b3) public expenditure (PE) is not statistically significant at 5 percent level as the t-statistics calculated at 0.2773 is less than tabulated t-value (2.0281); this implies that there is no significant relationship between Foreign Direct Investment (FDI) and Public Expenditure (PE) during the period (1992-2011) under study. This indicates that the level of government spending has an effect in attracting FDI into Nigeria. As PE increases FDI also increases

Research Question Two

Does FDI have any positive or negative influence on the growth of the Nigeria economy?

There is a significant relationship between Foreign Direct Investment (FDI) and Gross domestic product (GDP) during the periods (1992-2011) under the study

From the result of the regression in the appendix and displayed in table 2 shows that the parameter estimate (b1) Gross Domestic Product (GDP) is statistically significant at 5 percent level as the t-statistics calculated at 2.2978 is greater than the tabulated t-value at (2.0281) this therefore, means that there is a significant relationship between Foreign Direct Investment (FDI) and Gross domestic product (GDP) during the periods (1992-2011) Under the study indicating that FDI has a positive influence on the growth of the Nigerian economy. The descriptive statistics explains the extent of the growth of FDI in the Nigeria.

Research Question Three

To what extent has foreign direct investment been attracted to Nigeria?

FDI has increased to a large extent during the periods under study

FIGURE : THE FLOW OF FDI IN NIGERIA FROM 1992-2011

Source: Authors view from the data collected from CBN annual bulletins, (2011)

Figure 1 therefore shows the annual movement of FDI flows in Nigeria during the last 20 years. FDI increased at a slower pace from 1992 to 2002 but rose up rapidly in 2003 at a geometric rate but fell between 2007 and 2008 which was during the global financial crisis (recession). These falls could be a leading indicator of the country’s financial crisis (GDP) which was static in 2008 and 2009 and stood at 24,296,329.29 respectively as shown in table 4.1. Overall Nigeria has experience a tremendous increase in foreign direct investment.

4.7 GLOBAL ANALYSIS

From the Empirical result obtained using (OLS) ordinary least square regression technique; it would be observed that R2 of 0.9624 or 96.24% is the systematic variation in the dependent variable Foreign Direct Investment (FDI) which is accounted for by the explanatory variable (GDP), (CITR) and (PE). R2 = 0.9624, Adjusted R2 = 0.9554; F – Statistics = 136.636.

This implies that the model has a very high goodness of fit for the regression line with a very high predictive power while of R2-Adjusted is 0.9554, which is very close to the value of R2. This shows that the result from the regression may be error free.

Expectedly, f-statistics shows that the model is significant since the observed or calculated at 136.636 is greater than t-table of 23.45 at 5% significance level. This means that there is significant relationship between Foreign Direct Investment (FDI) and the independent variables, Gross Domestic Product (GDP), Company Income Tax Rate (CITR) and Public Expenditure (PE).The regression result for the models further revealed that the relationship between foreign direct investment and the fiscal policy proxies are not in line with our stated expected result. The PE (public expenditure) also shows a contrary result with the apriority (3 PE> 0). This invariably means that the foreign direct investment goes down as public expenditure increases.

Finally, it was observed that Gross Domestic Product (GDP) and Company Income Tax (CITR) is in line with our stated expected result. These last two results conform to the model specified (1GDPt and 2CITRt > 0).

From the regression result, the positive signs of the Independent variables which are Gross Domestic Product (GDP) and Public Expenditure (PE), this simply indicates that there is a positive relationship between these variables and Foreign Direct Investment (FDI). On the other hand, the Company Income Tax Rate (CITR) has negative sign indicating an inverse relationship between fiscal policy and Foreign Direct Investment.

CHAPTER 5

5.0 ANALYSIS AND DISCUSSION OF FINDINGS

5.1 INTRODUCTION

The objective of this chapter is to analyze the findings reached from results presented in chapter four. The aim of this study was to investigate the role of fiscal policy in attracting foreign direct investment into Nigeria from the period of 1992-2011. Findings showed that government expenditure and tax rate is the main variable that affects the flow of FDI in Nigeria, while GDP is a supporting variable. The implication is that the costs of doing business and making a profit in investments are determined by the policy formulated and levels of economic growth and development of the host countries (real GDP).

This study employed secondary data in analyzing the relationship between fiscal policy and foreign direct investment in Nigeria. The secondary data were obtained primarily from CBN annual report and bulletin for the relevant years (1992-2011). The Pearson Correlation and regression analysis was applied to find out whether there is a relationship between the variables to be measured (i.e. fiscal policy and foreign direct investment) and also to find out if the relationship is significant or not. However, Based on the major objective of this study, which is to determine the effect of fiscal policy on the attraction of foreign direct investment in Nigeria. The ordinary least square (OLS) regression and more specifically the multiple regression technique was used to ascertain the effect of changes in the explanatory variables on the dependent variables. The R2test, t-test and the F-test were equally employed in this work.

The variables employed in the study includes; FDI, Gross Domestic Product, Company Income Tax and Public expenditure. Foreign Direct Investment (FDI) was related directly as the dependent variable, and GDP, CIT, PE is the independent variable. Previous Study has shown that rigidity or absence of government policies is the chief determinant of FDI flows in Africa, particularly in developing African Countries like Nigeria (UNCTAD, 2000). Also, empirical research shows that the incentives offered to foreign investors have a stronger impact on the domestic market and making them less responsive to tax policies (UNCTD, 2007). This is shown in the results of other theoretical contributions, such as that of (Blinder & Solow, 1972), (Nkoro, 2012) and (Schoeman, et al., 2000).

5.2 SUMMARY OF FINDINGS

The summary of findings is divided into two sections. The first section reported the theoretical findings based on related theory while the second section discusses the empirical findings from the study we carried out on the relationship that exists between fiscal policies, FDI flows and economic Growth.

5.2.1 THEORETICAL FINDINGS

This study show that several theories developed on FDI determinants, which are grouped into two main schools of thought. One is the neo-classical school of thought that assumes perfect competition assumption. This theory asserts that multinational corporations would move their factors of production (capital, human skills, and technology) from a location with low return on investment to another location, which has a higher return on investment. The other school of thought (or the new theory) consists of scholars who develop their theories under imperfect market assumptions. In an imperfect market conditions, the monopolist or oligopolistic could maximize his profits or enjoy economies of scale through product differentiation. Dunning’s (2001) eclectic theory provides the three general conditions that must exist for foreign investment decisions. These three conditions — Ownership, Location, and Internalization (OLI) — integrate these conditions to determine FDI flows. Among the independent variables mentioned in the literature, the key determinants of FDI are: size of firm, technology, trademarks, human capital, market size, country risks, deficits, and tax incentives. The question further arises: How significant or not an independent variable becomes in a study depends on the kind of research under study.

Another findings show tax is a key determining factor of FDI and its effects on the location of FDI project (Moosa, 2002,p.187). Taxes also affect the profitability of an FDI project, as it determines the cost of capital and discount rate (Moosa, 2002). The development of Human capital by educating and training is a powerful and attractive force to foreign investors and for a country to tremendously benefit from spillovers from technology, the country must have the necessary absorptive capacity the available technology requires. Kojima hypothesis theory classified FDI into two: trade oriented FDI and anti-trade oriented FDI with the view that FDI improves welfare, promotes trade a beneficial restructuring in both countries and nevertheless could be unfavorable in restructuring the economy of both countries. Pistoresi (2000) cited in Moosa (2002, p.64) show that FDI depends on economic and political factors and abolishing restrictions encourages the flow of FDI. Further findings show that policy changes are more important for FDI than the growth of FDI or exchange rate (Sin and Leung, 2001).

The Keynesians view focuses on the use of fiscal policies as an instrument of economic stability and growth. With the view that a reduction in taxes, proper utilization of revenue obtained from taxation and appropriate government spending will stimulate growth. Some economist argued that an increase in government budget will affect aggregate demand and output hence ‘a crowding out effect’ here; the government borrows more funds to finance the budget and also FDI generates positive and negative externalities on economic development of a host country. In summary, the fiscal policy appropriate will be determined by the level of a country’s development.

5.2.2 EMPIRICAL FINDINGS

From the descriptive analysis, it was revealed that on average the sample size assessed generates Foreign Direct Investment (FDI) mean value of about 223,461.4 and a standard deviation of 289,508.7. This implies that on the average a reasonable growth of FDI in Nigeria. The minimum and maximum values of FDI are 1,882.71 and 873,553.0 respectively which suggests growth in absolute terms from 1992-1999. Although there were fluctuations, these may be due to the unstable political unrest in Nigeria during that period. As shown in table 4.1 FDI declined to 3,857.62 in 1997 and also in subsequent years, especially during the 1999 presidential election.

For the model, the average GDP from the 20 observations is about 10,855,845 suggesting that Nigeria have relatively moderate Gross Domestic Product (GDP) with a maximum value of 33,452,076 and deviation of 10,600,776. The implication is clear that GDP in Nigeria has relatively increased compared with other measures of central tendency. From the regression results discussed above, some findings and implications can be highlighted. First, regression test shows the existence of a unique long-run relationship between foreign direct investment, gross domestic investment, company income tax, and public expenditure.

The error correction term also explains that about 27.23% of errors made in the previous year would be corrected in the current year in Nigeria. Though only two of the expressed explanatory variables – PE and GDP were shown to have significant influence on the flow of foreign direct investment, these two variables are positively correlated with FDI. This implies that the explanatory variable tends to move in the same direction with FDI and investment is affected by Government expenditure. Company Income Tax Rate (CITR) is negatively correlated with FDI. This implies that the explanatory variables tend to move in the adverse direction with FDI. It also implies that CITR does not have any significant influence on the foreign direct investment in the Nigerian economy, this might as a result of higher tax rates being charged on the profits which in turn discourages foreign investors in terms of FDI inflows.

Further analysis of this relationship revealed that fiscal policies adopted in a country can help synchronize FDI which in turn upgrades a country’s technological level, creates new employment, and promoting economic growth. Empirical evidence has shown that an increase in government spending will cause a rise in interest rate, hence a reduction in investment, reason been that investment is responsive to interest rate.

In summary this chapter has showed evidence that the fiscal policy variable plays a vital role in attracting FDI into a country like Nigeria. It is also clear that only an investment friendly and a stable country can attract FDI into a particular country, and foreign investors are stimulated to invest in a country that has attained a certain level of development. Finally, this research has revealed a lot of relationship between variables that are also relevant to this topic. Hence, the following chapter provides a final conclusion to the study and makes recommendations for policy makers and future research.

CHAPTER 6

6.0 CONCLUSION AND RECOMMENDATIONS

6.1 CONCLUSIONS

This study investigates the role of fiscal policy in attracting foreign direct investment in Nigeria using the OLS technique and the multiple regression technique. It covers the period of 20years beginning from 1992-2011. The multiple regression results shows that as FDI increases, GDP also increases, and a unit increase in CITR will cause a decline in FDI and an increase in public expenditure will also cause an increase in FDI. The results from the analyses are clear and revealing. It shows that for an economy to attract FDI it should be transformed into an investor’s friendly environment. FDI has become a key competitive strategy for enterprises to invest all over the world, to access market, technology, resources and talent (Selvanathan, et al., 2012). However, host governments consider FDI as an important element in the development of their economies, employment opportunities and competitiveness. Nigeria recorded an increase in FDI inflows since its independence in 1960 (CBN, 2008). The studies in the literature showed that the flow of FDI increases as a result of stimulating governance in the host country (either fiscal or otherwise). Blomstrom and kokko (2003) argued that the desire to acquire modern technology is the salient reason behind countries effort to attract more FDI. Some literatures also argue that FDI can reduce productivity of domestic firms which refers to as negative spillover (Asafu-Adejaye, 2000), (Aswathappa, 2010), (Dale, et al., 1997) , (Menjah, et al., 2012,P.174), (Blomstrom & Kokko, 2003) etc.

The policies of governments on FDI vary over time as many developing countries like Nigeria strive for FDI with the expectation that it will have a significant impact on the economic development of the country (Menjah, et al., 2012). In general, the economic effect of FDI cannot be over emphasized. FDI provides growth of employment opportunities, access to new technologies, and access to marketing expertise’s and skills and international trade integration (Menjah, et al., 2012). FDI can raise the infrastructure of the host country, FDI increases the productivity of the labor force of the host country, but this is subject to a certain level of Labor productivity. It can also improve the purchasing power of the people of the host country hence; it requires a certain minimum level of per capita income. The economic reforms were one of the fiscal policy that was introduced in Nigeria. It aimed at increasing the flow of FDI in Nigeria during Obasanjo first term in office. One of the reforms were the NEEDS programme in various sectors of the economy among which are the expansion of mobile telephones, economic liberation and a significant privatization gain has also been recorded (Iliffe, 2011). The essence of this reforms was to stabilize the economy. NEEDS proposed three strategies: to foster private enterprises through privatization and liberation, increase in job creation and increase in government expenditure for the provision of essential series aimed to increase real GDP to 7% by 2007 and 22% by 2011 (Iliffe, 2011,p.269). Annual GDP growth ranged between 7.1% in 2004 and 5.3% in 2007 (Iliffe, 2011,p.277). Nigeria accounts for one-fifth($8.92bn) of Africa’s total flows,which makes it the largest FDI beneficary (Punch Reporter, 2013). The impact of FDI in Nigeria has become extremely obvious. Table 4.1 shows the flows of FDI and its contribution to the economy(real GDP) for 20years spanning from 1992-2011. As shown in figure 1 the share of FDI in GDP was 2.5% and 2.6% in 2010 and 2011 respectively. The economic climate of Nigeria ,though had not been conducive to FDI in the past but has improved since 1999. The GDP rate which averaged 3.1% from 1986-1999 has improved to 5.4% between 2000 and 2008 (CBN, 2008). FDI totals 16.8% of the Nigerian gross fixed capital formation in 2011 compared with 31.9% in 2010(Punch Reporter, 2013). The Nigerian Government estimates an inflow into power and petroluem sector with enormous impact on the economy. The inflow of FDI into Nigeria will enhance economic development. However, with most studies it was evident that so many variables determines the growth of FDI, of which fiscal policy is one and this is why this research was carried out. This study found out that good fiscal policy measures goes a long way in attracting FDI in Nigeria and that FDI flows into the different sectors of the economy influences economic growth. In spite of the limitations of the data used, the results are robust and clear. Most of the theoretical work on the benefits associated with FDI tends to be related to the economy at large. The government of Nigeria is not relenting in its efforts to boost FDI inflows into the country by liberalizing the investment regime of the country and by providing various investment incentives. Fortunately, the amount of foreign direct investment coming to Nigeria is quite impressive. An agency reports that the major sector of the economy that benefits from the flow of FDI is the oil and gas services, manufacturing ( Punch Reporter, 2013).

In the course of this study the researcher encountered some difficulty which can be attributed to the nature of the reasearch work. There are few studies on FDI in Nigeria that might not encounter some limitations because of the poor recording system in Nigeria and the accuracy of data is not reliable which makes it difficult for the researcher to gather informamtion for a reasonble number of years. The economic disposition and policies formulated should be an important area to access which could serve as an attraction to FDI. More work is required in this area of study especially in the collection of data and time disparity.

6.2 RECOMMENDATIONS

For the purpose of attracting more FDI and enhancing the growth of the Nigerian economy as per fiscal policy regulations in Nigeria, we recommend the following arising from the findings made.

First and foremost Nigeria should attain a certain level of development. Nigeria should strive for growth and this can only be achieved if the available resources are utilized. Therefore, factors that hinder growth and development should be taken into consideration. Foreign investors are motivated to invest in a country where the nationals’ investors are doing successfully.

The adoption of international financial reporting standard (IFRS) in Nigeria (1st January, 2012) is also expected to address issues relating to tax evasion, weak enforcement and competition. This will enable the economy to generate more tax revenue ever a moderate reduction in the tax rates. It is necessary to encourage proper reporting and voluntary compliance in taxation. The introduction or modification of laws such as fiscal responsibilities Act and freedom of information Act is recommended, which are aimed at ensuring transparency in the utilization of tax revenue.

A quality FDI can only be attracted if the issue of corruption is tackled, with the help of agencies established to fight it. Such as the EFCC (Economic and financial crimes commission and ICPC (independent corruption practices commission) should be able to make Nigeria a safe place for foreigners and nationals to invest.

The issue of taxation is crucial to assessing how to address pressures for internationally competitive tax treatment of FDI. It is essential to carry out cost/benefit assessment of tax relief, and for estimating the impact of tax revenues of any reform of a corporate tax policy. Tax planning strategies should be incorporated as it lowers investor’s tax burden. Also it is not always clear that tax reduction is a requisite for attracting FDI (OECD, 2008).

Tax planning can significantly reduce the tax burden on FDI. It is also clear that a low tax burden cannot compensate for a generally weak or unattractive FDI environment. (OECD, 2008).it is often argued that in competing to attract FDI, host government should relax the enforcement of government regulations and standards (OECD, 2008).

The Government should introduce anti abuse measures to protect the tax system from sophisticated tax planning and aggressive tax scheme which exploit differences across tax system.

There is the need to create a friendly investors business environment, one way to do that is for the government to provide social infrastructural facilities like good road, water electricity, education etc. doing all these should be the priority of the government, as these are the essential requirements for FDI and economic development, resulting to a lower the cost of foreign investment in Nigeria.

The focus of the government expenditure in 2013 should be, an investment in infrastructural facilities like good road and rail transporting, In addition to a reduction of production cost which will accelerate inflows into all the sectors of the economy, eventually enhancing the growth of GDP.

Finally the government should pay more attention on investment because we expect a growing economy, stable exchange rate, favorable interest rate, improved infrastructure investment and portfolio investment to flow into Nigeria in 2013.