Public Capital Expenditure, Economic Growth and Foreign Direct Investment in Nigeria: An Empirical Analysis

In Nigeria, public capital expenditure has continued to rise due to the huge receipts from the production and sales of crude oil but its impact has not really been felt on the economy as the physical state of the nation in terms of infrastructure is still backward. Despite all these, there is a mixed feeling depicting whether increasing capital expenditure and economic growth induces foreign direct investment or not, hence, the need for this study. Thus, the purpose of this study is to empirically evaluate the relationship between public capital expenditure, economic growth and foreign direct investment in Nigeria from 1986 to 2018. The study draws data from the Central Bank of Nigeria Statistical Bulletin and World Development Indicators and adopts the error correction model (ECM), variance decomposition and Granger causality test in the estimation of the relevant relationships between the variables. The results of the short run dynamics revealed that capital expenditure exerted positive and significant effect on FDI. Interestingly, this outcome filled the gap in previous studies as it is robust to a Granger causality implying that capital expenditure is a strong determinant of FDI inflows in Nigeria. Contrary to expectation, economic growth had a negative, insignificant and a zero causal relationship with FDI signifying that Nigeria has abundance of cheap underemployed or unemployed labour and natural resources and so even with a low level of economic growth rate, it experienced increased FDI. The study recommends that there is need for the Government to ensure that its yearly capital budget are managed and utilized effectively in the provision of the necessary infrastructure most especially on the aspect of good road network, steady power supply and security in the area where foreign investors intend to operate. This will act as an incentive to foreigners to do business in Nigeria in a very conducive environment and at a reduced cost and thus, will attract more inflows of foreign direct investment.