Financial Intermediation and Inflow of Foreign Direct Investment in Nigeria: An Application of Ordinary Least Square Methods

Abstract

This study examined the relationship between financial intermediation and inflow of foreign direct investment in Nigeria. Time series data were sourced from Central Bank of Nigeria Statistical Bulletin. Foreign direct investment was modeled as the function of private sector credit, core private sector credit, deposit mobilization and interest rate. Ordinary least square was used as data analysis methods. The estimated model found that 52.2% of the variation in the independent variables explained the dependent variable while 47.8 % of independent variables not included in this study explains the dependent variable. The estimated model further found that private sector credit, core private sector credit and deposit mobilization have positive and significant relationship with inflow of foreign direct investment while interest rate have negative and no significant effect on inflow of foreign direct investment. From the findings, the study conclude that financial intermediation determine the inflow of foreign direct investment in Nigeria. It recommends that Central Bank of Nigeria should enact reforms that must be directed at improving the quality of financial development indicators and its services to meet the needs of foreign and domestic investors and the economy at large. These include policies that will check the activities of banks management who launder the facilities meant for investors for private gains and efforts should be directed at the removal of impediments that block the short-term and long-term linkage between financial development and foreign and domestic investment in Nigeria.