Abstract
Attracting foreign direct investment (FDI) is not without challenges. Numerous barriers, including political instability, corruption, and macroeconomic policies, have been identified as significant impediments to foreign investment in Nigeria. Therefore, our study evaluates the impact of systemic corruption and political risk on Nigeria’s FDI inflows. Our study employs the autoregressive distributed lag and fully modified ordinary least square models to analyze the key determinants influencing FDI decisions on a comprehensive dataset from 1996 to 2023. The study’s findings reveal that higher levels of corruption and political instability negatively affect FDI inflows, deterring potential investors and undermining economic growth. Furthermore, we explore the moderating role of institutional quality and regulatory frameworks such as political stability and absence of violence, regulatory quality, rule of law and control of corruption in mitigating the adverse effects of corruption and political risk. The results underscore the necessity for robust anti-corruption measures and improved political stability to enhance Nigeria’s attractiveness as an investment destination. The study recommends that addressing these systemic issues through effective anti-corruption measures and enhancing political stability is crucial for creating a more attractive investment climate.
Highlights
High corruption levels negatively affect foreign direct investment (FDI).
A high level of perceived corruption raises transaction costs, reduces efficiency and deters domestic and foreign investment, making it harder to achieve long-term economic growth.
GDP growth shows a notable negative correlation with the corruption perception index, implying that combating corruption may enhance economic growth.