Global Jou nal o Economic and
Finance Resea ch
Vol. 02(11): 1283-1292, No embe 2025
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e-ISSN: 3050-5348
p-ISSN: 3050-533X
DOI URL:h ps://doi.o g/10.55677/GJEFR/17-2025-Vol02E11 pg. 1283
Fiscal Policy and Fo eign Di ec In es men In lows in Nige ia: An ECM
App oach
Chinweoke Nwaeze, Ph. D1, Kalu Johnson Okwudi i2
1Depa men o Banking and Finance, Abia S a e Poly echnic, Aba
2Depa men o Business Adminis a ion and Managemen , Abia S a e Poly echnic, Aba
1. INTRODUCTION
Fo eign Di ec In es men (FDI) plays a c ucial ole in p omo ing economic g ow h and de elopmen in hos coun ies. Fiscal
policy ins umen s such as ax e enues, go e nmen expendi u es and go e nmen deb can signi ican ly in luence o eign di ec
in es men in lows in a coun y. The measu e o iscal policy is one o he bigges issues associa ed wi h his s udy. In heo y,
he e a e h ee iscal policy measu es (go e nmen expendi u e, axa ion e enue and de ici s). O hese h ee a iables, li e a u e
did no single ou any as he mos ep esen a i e o iscal policy. Fo ins ance, schola s like T eb icka (2015); Thui a (2017) used
ax a es as a p oxy o iscal policy o he s such as Edame and Okoi (2015) had used de ici s o accoun o iscal policy in hei
es ima ions. Kwame (2021) used go e nmen expendi u e o accoun o iscal policy s ance. In a si ua ion whe e go e nmen
expendi u e was conside ed as a iscal policy measu e, s udies such as Osuala and Ebie i (2014) had conside ed agg ega e
go e nmen expendi u e as a single a iable, while o he s, such as, Bello (2015) was o he iew ha he a iable ough o be
decomposed in o ecu en and capi al expendi u e.
Taxa ion (an aspec o iscal policy) has ecei ed conside able a en ion in li e a u e la ely, bu he e has been e y less wo k on
examining i s e ec on FDI in lows. Also, he second aspec o iscal policy ha ela es o expendi u e o go e nmen had no
ecei ed much a en ion in e ms o i s in luence on FDI. Howe e , Olaleye, Ri o and Memba (2016) a i med ha while ax
incen i es ( e enue side o he iscal policy) migh be used as ins umen s o a ac FDI, O hman, Yusop, Andaman and Ismail
(2018) obse ed ha go e nmen expendi u e on p oduc ion o public inpu s which migh be o p oduc i e use o bo h o eign and
KEYWORDS: Deb , Expendi u e,
Go e nmen , In es men , Tax Re enue
Co esponding Au ho :
Chinweoke Nwaeze, Ph. D
Publica ion Da e: 27 No embe -2025
DOI: 10.55677/GJEFR/17-2025-Vol02E11
License:
This is an open access a icle unde he CC
BY 4.0 license:
h ps://c ea i ecommons.o g/licenses/by/4.0/
ABSTRACT
This s udy examined he e ec o iscal policy on Fo eign Di ec In es men
in lows in Nige ia o he pe iod 1999-2023. Fo eign di ec in es men in lows
o Nige ia se ed as he dependen a iable while iscal policy p oxied by
go e nmen ax e enues, go e nmen expendi u e and go e nmen deb se ed
as he independen a iables. Time se ies da a o he pe iod s udied we e
sou ced om he Cen al Bank o Nige ia (CBN) S a is ical Bulle in as well as
om he Nige ia Bu eau S a is ics (NBS). The Augmen ed Dickey-Fulle (ADF)
uni oo es indica ed ha all he a iables we e in eg a ed a o de 1 i.e. I(1)
while he Johansen coin eg a ion es showed ha long un equilib ium
ela ionship exis ed among he a iable. Hence, he s udy employed he E o
Co ec ion Model (ECM) echnique in da a analysis. Empi ical indings o he
s udy e ealed ha go e nmen expendi u e had a posi i e and signi ican e ec
on o eign di ec in es men in lows in Nige ia while go e nmen ax e enue
and go e nmen deb exe ed nega i e and insigni ican e ec s on o eign di ec
in es men s in Nige ia o he pe iod s udied. The s udy he e o e ecommended
amongs o he s ha he e is he need o go e nmen o ensu e ha inc eased ax
e enues as well as i s expendi u es a e channeled owa ds he p oduc i e sec o s
o he economy such as ag icul u e, educa ion, cons uc ion, manu ac u ing and
in as uc u al de elopmen . Go e nmen deb s a e also o be judiciously
managed and used o inance c i ical sec o s o he economy. All hese will
posi i ely enhance economic g ow h and FDI in lows o Nige ia.
Chinweoke Nwaeze, Ph. D (2025), Global Jou nal o Economic and Finance Resea ch 02(11): 1283-1292
DOI URL:h ps://doi.o g/10.55677/GJEFR/17-2025-Vol02E11 pg. 1284
domes ic in es o s could also play a signi ican ole in a ac ing o eign in es o s. Coun ies compe ing o FDI migh wan o
o e a be e ax en i onmen , go e nmen s may also end o make e o s o mode nize he in as uc u e, inc ease local
p oduc i i y-enhancing human capi al o ma ion, and imp o e he o e all business en i onmen o he coun y (Anichebe, 2019).
This shows ha p io empi ical wo ks yielded mixed esul s. These mixed bags in indings cons i u e a se ious p oblem, making i
necessa y o ca y ou an in es iga ion in o he impac o iscal policy on FDI in lows in Nige ia.
Based on he signi icance o FDI, coun ies now make delibe a e e o s owa ds a ac ing FDI in o hei espec i e economies. A
po en ool go e nmen could use o acili a e in lows o FDI is iscal policy. Fo ins ance, wi h iscal policy, go e nmen would
be able o a ec economic a iables such as agg ega e demand, income, and economic ac i i y as a whole (Pe e s and Kiabel,
2015). This shows ha ma ke mechanism canno solely s imula e economic ac i i ies in a coun y; and as such he e is demand
o public policy o co ec , guide and supplemen ma ke o ces owa ds co ec ing ma ke impe ec ions and ailu es (Osuala and
Ebie i, 2014). The cen e o iscal policy is o in luence and moni o he economy by adjus ing axes and/o public spending by
go e nmen . Hence, Oluwa emi, Awojo i and Olu (2015) explained ha a ac ing FDI o a la ge ex en is dependen on he abili y
o p o ide a a ou able go e nmen egime such as lowe axa ion a e, especially o he de eloping coun ies ha lack well-
es ablish ma ke s when compa ed o he de eloped coun ies. S udies on he subjec e eal ha iscal policy had in luenced he ne
e u n on capi al which in u n a ec ed low o FDI be ween coun ies. As a esul , mos hos go e nmen s ha e p o ided a ious
o ms o in es men incen i es o encou age o eign owned companies o in es in hei ju isdic ion. These include iscal
incen i es, such as ax holidays and lowe axes o o eign in es o s, inancial incen i es such as g an s and p e e en ial loans o
mul ina ional companies and o he in es o s, as well as measu es such as ma ke p e e ences, in as uc u e, and knowledge
spillo e ; and some imes e en monopoly igh s (Khali a, 2016).
Based on he abo e backg ound, his pape speci ically examined he impac o go e nmen ax e enue, go e nmen expendi u e
and go e nmen deb on o eign di ec in es men in lows in Nige ia o he pe iod 1999-2023.
2. LITERATURE REVIEW
Concep ual Re iew
Fo eign Di ec In es men s (FDI)
Inc eases in FDI can ake he o m o injec ions o addi ional o new equi y capi al, he ein es men o ea nings no dis ibu ed as
di idends by subsidia ies o associa ed en e p ises and undis ibu ed b anch p o i s, and a ious in e company claims, such as he
ex ension o supplie s’ c edi s o loans, all o which ep esen FDI capi al. These ansac ions co e only an aspec o inancing
a ailable o di ec in es men en e p ises ha can also expand hei ope a ions by bo owing in local ma ke s and in in e na ional
capi al ma ke s, wi h o wi hou he gua an ee o di ec in es o s (Wo ld Bank, 2002). The in ense compe i ion among
mul ina ional companies (MNC) o u ilize sha ed esou ces lead o deg ada ion o na u al esou ces as well as en i onmen al
pollu ion, which ha e been associa ed wi h he issue o clima e change (Sind e, 2011). I could also lead o he impo a ion o
capi al in ensi e and ou da ed echnology, exploi a ion o local labou , inc ease in local wage cos h ough paymen o high wages
by mul ina ional co po a ion (MNC) a ilia es, con ibu ion o economic leakage (and de e io a ion o balance o paymen s)
h ough p e e ence o impo ed inpu s o local ones. I could also cause ad e se e ec s on compe i ion in he na ional ma ke , use
o ans e p ices o escape local axes and o chea local pa ne s on e u ns, encou agemen o co up ion, pollu ion o he
en i onmen , especially in ex ac i e and hea y indus ies, Social dis up ions associa ed wi h accele a ed comme cializa ion and
c ea ion o as es o expensi e o eign consume goods and poli ical dependency on FDI sou ce coun ies and he e o e, loss o
so e eign y.
Acco ding o Wo ld Bank (2013), o eign di ec in es men s a e de ined o mean he ne in lows o in es men s o acqui e a
las ing managemen in e es (10% o mo e o o ing s ock) in a company ope a ing in an economy o he han ha o he in es o .
I cap u es he agg ega e o equi y capi al, ein es men s o ea nings, o he long- e m capi al, and sho – e m capi al as shown in
he balance o paymen s (Maingi, 2014).
Go e nmen Expendi u e
Acco ding o Nwaeze (2019), go e nmen expendi u e e e s o he expenses o go e nmen o ca e o i s adminis a ion, he
socie y and economy a la ge. I is a c ucial iscal policy ool ha can s imula e economic g ow h, mo e especially du ing
ecessions (Keynes, 1936). Se e al s udies ha e e ealed ha go e nmen spending can ha e a posi i e mul iplie e ec on
economic g ow h (p oxied by RGDP), wi h he size a ying in acco dance o he ype o expendi u e and p e ailing economic
condi ions (Aue bach and Go odnichenko, 2012). Excessi e go e nmen expendi u e howe e , can lead o iscal unsus ainabili y
and c owding ou o p i a e in es men , which could be in la iona y (Bui e , 2010).
Go e nmen expendi u e has signi ican economic implica ion on he economy. I could be used as a ool o coun e cyclical
policy by go e nmen as i se es he pu pose o s abilizing an economy du ing down u ns. Howe e , i is impo an o ensu e ha
such spending a e a ge ed o speci ic sec o s and e ec i e oo,
Chinweoke Nwaeze, Ph. D (2025), Global Jou nal o Economic and Finance Resea ch 02(11): 1283-1292
DOI URL:h ps://doi.o g/10.55677/GJEFR/17-2025-Vol02E11 pg. 1285
Tax Re enue
Tax e enue emains a majo sou ce o e enue o go e nmen in mos economies. While some s udies sugges ha ax educ ions
could boos economic g ow h by way o inc easing incen i es o wo k, sa ings and in es men s (Mankiwa, 2013). O he s a gue
ha ax cu s may lead o educed go e nmen e enue, inc eased inequali y and dec eased public in es men (Saez and Zuciman,
2019).
Tax e enue has signi ican implica ions o economic policy. Go e nmen can implemen ax e o ms in o de o educe
inequali ies, inc ease e enue and p omo e economic g ow h. These e o ms may include measu e such as adop ing p og essi e
ax sys ems, imp o ing ax adminis a ion and closing ax loopholes. Ta ge ed ax incen i es could be used o encou age
in es men in speci ic sec o s as esea ch and de elopmen . Fu he , go e nmen could go in o agg essi e and e ec i e e enue
mobiliza ion in o de o educe much dependency on deb s and hus, ensu e ha ax bu den is dis ibu ed ai ly. These s a egies
will go a long way in encou aging o eign di ec in es men s in a coun y.
Go e nmen Deb
Public deb can be a e y e i able ool o inancing public expendi u e, howe e high le els o deb can lead o iscal
unsus ainabili y and inc eased isk o deb c ises (Reinha and Rogo , 2010). Some s udies ha e shown ha he ela ionship
be ween go e nmen deb and economic g ow h is non-linea , wi h high deb le els associa ed wi h lowe economic g ow h and
hus lowe o eign di ec in es men s in a coun y (Cecche i, Mohan y and Zampolli, 2011). On he o he hand, some s udies
a gue ha ela ionship be ween deb and economic g ow h could be mo e complex as deb can be a use ul ool o inancing
p oduc i e public in es men s which can also encou age o eign di ec in es men s in a coun y (Delong and Summe s, 2012).
Deb ’s signi ican economic implica ions can be seen in he a ea o deb sus ainabili y. This is o a oid deb c ises and
main enance o access o c edi ma ke s. Again, e ec i e deb managemen s a egies can be o immense impo ance in
minimizing bo owing cos s, isks and main aining iscal s abili y in a coun y. Deb s can also be used o inance in es men s in
p oduc ion sec o s o he economy such as in as uc u e, educa ion and esea ch. All hese can d i e long e m economic g ow h
and also a ac di ec o eign in es men s.
Theo e ical Re iew
The eal op ion heo y and he Eclec ic Pa adigm heo y a e explained he ein. Howe e , he s udy is ancho ed on he Eclec ic
Pa adigm heo y.
The Real Op ion Theo y
The eal op ion heo y is based on he elemen o unce ain y in in es men s which has ecei ed much a en ion due o i e e sible
in es men s and policy inconsis ency (Schni ze , 2000). The a gumen is ha since capi al goods a e o en i m speci ic and ha e
low- esale alue, dis-in es men is mo e cos ly han posi i e in es men . The heo y was de eloped by conside ing a i m’s
p oblem o deciding he op imal ime o pay a sunk cos in e u n o a p ojec o a ce ain alue. Thui a (2017) a gued ha , o
some es ablishmen s, he i m could no disin es should ma ke condi ion change ad e sely, and his could inc ease unce ain ies
o he po en ial in es o s. Policy unce ain y was also conside ed as an impo an de e minan o p i a e in es men . When a
policy e o m is in oduced, i is e y unlikely ha he p i a e sec o would see i as one hund ed pe cen sus ainable, and
he e o e, i may no lead o mo e in es men . Real op ion app oach ad oca es o consis ency in mac oeconomics policies such as
mone a y and iscal policies in o de o elimina e any unce ain ies ha may be p ohibi i e o he p i a e in es men (Bleje and
Khan, 1984).
The Eclec ic Pa adigm Theo y
This heo y is also known as he OLI amewo k and was de eloped by John Dunning in 1977 and upda ed in 2000. I is a
heo e ical amewo k ha explains why i ms and go e nmen s engage in o eign di ec in es men (FDI) and how hey choose
loca ions o hei o eign ope a ions. This heo y is based on h ee basic ad an age: owne ship ad an ages (O), loca ion
ad an ages (L) and in e naliza ion ad an ages (I). In a nu shell, i ms engage in o eign di ec in es men when hey possess
owne ship ad an ages ha can be exploi ed in a o eign ma ke . The loca ion ad an ages o he hos coun y de e mine he
a ac i eness o he ma ke and he p o i po en ials. In addi ion, i ms will decide o in e nalize hei ope a ions in a o eign
ma ke when he bene i s o doing so, is g ea e han he cos s associa ed wi h i .
Thus, he OLI heo y has g ea implica ions o bo h i ms and go e nmen s. Fo he go e nmen , i pos ula es ha c ea ing a
a ou able business en i onmen and o e ing loca ion ad an ages can a ac FDI and p omo e economic g ow h. Howe e , o
i ms, i exposes he impo ance o de eloping and le e aging owne ship ad an ages o compe e in o eign ma ke s.
Empi ical Re iew
Lenyie (2025) examined he e ec s o iscal policy a iables on o eign in es men in Nige ia. Da a we e ob ained om he
Cen al Bank o Nige ia S a is ical Bulle in. Fo eign in es men is he dependen a iable while capi al expendi u e, ecu en
expendi u e, oil e enue and non-oil e enue a e he independen a iables. Au o g essi e Dis ibu i e Log (ARDL) echnique
was employed in da a analysis. The es ima ed ARDL model e ealed ha iscal policy a iables caused 76.3 pe cen a ia ion in
Chinweoke Nwaeze, Ph. D (2025), Global Jou nal o Economic and Finance Resea ch 02(11): 1283-1292
DOI URL:h ps://doi.o g/10.55677/GJEFR/17-2025-Vol02E11 pg. 1286
o eign in es men s in Nige ia. Findings e ealed ha bo h capi al and ecu en expendi u es had posi i e e ec on o eign
in es men in Nige ia while bo h oil and non-oil e enue had nega i e e ec on o eign in es men in Nige ia. The pape hus,
ecommended amongs o he s ha go e nmen should ensu e ha e enue ealized is adequa ely allo ed o he p oduc i e sec o
o he economy in o de o boos in low o o eign in es men in he coun y.
In a s udy by E ans, Ka iuki and Wa ula (2022) on he assessmen o he impac o iscal policy on o eign di ec in es men in
Kenya, ime se ies seconda y da a om 1987-2017 we e used and he s udy employed desc ip i e s a is ics me hodology. Fo eign
di ec in es men se ed as he dependen a iable while ex e nal public deb , domes ic deb , in as uc u e and ax se ed as he
explana o y a iables. Empi ical analysis showed ha go e nmen expendi u e on in as uc u e, ax and FDI we e posi i ely and
signi ican ly ela ed; ex e nal deb and FDI we e nega i ely and signi ican ly ela ed while domes ic deb and FDI we e nega i ely
and signi ican ly ela ed. The s udy ecommended ha in o de o a ac mo e FDI, Kenyan go e nmen should implemen ade-
balanced ac ions, educe co up ion; implemen income-collec ing ax policies and p omo e in e na ional ade in o de o ensu e
compe i i eness in Kenyan p oduc s.
Kwame (2021) analyzed he in luence o ax incen i es on o eign di ec in es men in A ican economies based on da a om
2000–2018. We u ilized panel da a on o y (40) A ican coun ies and an econome ic model o ou p oxies o ax incen i es,
a e con olling o he a iables, wi h obus Random E ec as ou discussion es ima o . The esul s e ealed ha FDI esponds o
lowe co po a e income ax (CTR). Fu he mo e, o eign di ec in es men p edomina es in A ican economies wi h longe ax
holidays and wi hholding ax. Howe e , ax concession is insigni ican o he in lows o FDIs in A ica. Summa izing, he esul s
ecommended ha wi hou p ope es uc u ing o he ax incen i es o deal wi h policy lapses by he go e nmen s o A ica,
achie ing he ou main goals, i.e., po e y e adica ion, sus ainable g ow h and de elopmen , A ican in eg a ion in he
compe i i e global economy, and women empowe men , will be hinde ed.
Ogege and Boloup emo (2020), app aised he in luence o he go e nmen iscal policy on o eign di ec in es men (FDI) in he
economy o Nige ia p e and pos -mili a y ule. To achie e he objec i es o his wo k, ime se ies da a spanning om 1981-1999
(mili a y e a) and 2000-2018 (pos -mili a y e a) we e employed and analyzed wi h he aim o assessing he in luence o iscal
policy on FDI du ing hese signi ican poli ical pe iods in he annals o he coun y. In o de o p e en he p esence o alse
es ima ion ou comes, he Augmen ed Dickey Fulle es was employed o assess he s a iona i y and sequence o in eg a ion o he
a iables. The O dina y Leas Squa e echnique and co ela ion analysis we e deployed o es he long- un associa ion ha exis s
among he a iables. The ou comes o he analysis e ealed ha in la ion had a signi ican posi i e in luence on FDI in he
mili a y e a in Nige ia; go e nmen expendi u e was posi i ely and signi ican ly associa ed wi h FDI o bo h mili a y and pos
mili a y e a; go e nmen domes ic deb was ad e sely and insigni ican ly associa ed wi h FDI o bo h mili a y and he pos
mili a y e a; o eign exchange a e was posi i ely and signi ican ly associa ed wi h FDI in he mili a y and ad e sely associa ed
wi h FDI in pos -mili a y e a. The esul s u he sugges ed he exis ence o a posi i e and insigni ican associa ion o go e nmen
ax e enue wi h FDI o bo h mili a y and pos -mili a y e a.
Boly, Coulibaly and Ke e (2019), empi ically assessed impac o co po a e income ax on o eign di ec in es men in lows in
A ica. Using a dynamic spa ial Du bin model wi h ixed e ec s, he esul s e ealed ha cu s in co po a e income ax a es
inc eased FDI ne in lows in he hos coun y and in he neighbo ing coun ies in he sho - un and long- un. These indings we e
o he use o al e na i e spa ial weigh ing ma ices as well as he inclusion o addi ional con ols in he baseline speci ica ion.
Also, a s a egic complemen a i y in FDI in lows was ound be ween he sampled coun ies which sugges ed ha an inc ease in
FDI in lows in a hos coun y was likely o boos FDI in lows o i s neighbou s.
Anichebe (2019), examined he impac o ax e enue on o eign Di ec In es men in Nige ia; using ime se ies da a om 1981 o
2017. Da a o he s udy was sou ced om he Cen al Bank o Nige ia S a is ical Bulle in and he Na ional Bu eau o S a is ics
and analysed using he O dina y Leas Squa e (OLS) echnique. The esul s showed ha ax e enue had long un ela ionship
wi h Fo eign Di ec in es men in Nige ia. Company income ax and pe sonal income ax had nega i e impac on o eign di ec
in es men in he long un, while alue added ax and cus om and excise du y had posi i e ela ionship wi h o eign di ec
in es men in he long un. Based on indings, he ollowing ecommenda ions we e made; p o ision o in as uc u es by he
go e nmen , elimina ion o mul iple axes as well as simpli ying ax laws and adjus ing ax a es o encou age in es men s.
O hman, Yusop, Andaman and Ismail (2018) in es iga ed impac o go e nmen expendi u e owa ds o eign di ec in es men
(FDI) in lows in he hos coun y using a panel da a se o se en (7) coun ies spanning om 1982 o 2016. The coun ies o
Malaysia, Indonesia, Singapo e, Thailand and Philippine (ASEAN-5), India and China we e used o he s udy. The examina ion
o go e nmen spending owa ds FDI was done by conduc ing he pooled mean g oup (PMG) es ima ion de eloped by using
ma ke size, capi al, mac oeconomic s abili y and in as uc u e as con ol a iables. The esul s o he s udy showed ha
go e nmen spending con ibu ed posi i ely owa ds FDI in lows in he long un. The s udy sugges ed ha he spending pa e n o
go e nmen should be di ec ed mainly o p oduc i e economic ac i i ies due o he ac ha highe economic g ow h s imula ed
economic ac i i ies in he coun y in he long un and con ibu ed o la ge o eign di ec in es men s (FDI) in lows o he coun y.
Mugambi and Mu unga (2017), in es iga ed he e ec o ex e nal deb se ice on o eign di ec in es men in lows in Kenya
using ime se ies da a unning om 1980 o 2014. The s udy adop ed g oss ixed capi al o ma ion, in la ion a e, exchange a e
Chinweoke Nwaeze, Ph. D (2025), Global Jou nal o Economic and Finance Resea ch 02(11): 1283-1292
DOI URL:h ps://doi.o g/10.55677/GJEFR/17-2025-Vol02E11 pg. 1287
and eal GDP as he con ol a iables. The s udy es ima ed long un coin ega ing equa ion and he indings showed ha ex e nal
deb se ice had a nega i e impac on coun y’s o eign di ec in es men s. The s udy ecommended ha go e nmen should no
hea ily ely on ex e nal bo owing o inance economic g ow h bu should a he cu he p og ams o a oid highe budge de ici .
Kibu i, Mi ie, Oki o and Ruigu (2017), es ablished he ela ionship be ween ax bu den and FDI in lows om 1990-2015.
Taxa ion componen s such as ax sys em, ax ypes, ax a es, ax base, ax s uc u es a ec ed he amoun o ax e enues collec ed
hence he ax bu den. The e o e, ax bu den was ep esen ed by i sel and axa ion componen s in his s udy. The da a analysis was
done using eg ession analysis. The esea ch indings demons a ed ha wo ld o e he e was no uni e sal consensus on he
ela ionship be ween ax bu den and FDI in lows. The e o e, ax compe i ion heo y, which p oposes ha he e is in e se
ela ionship be ween ax bu den and FDI in lows migh no be applicable uni e sally. The esea ch implica ion is ha he s udy
has demons a ed ha in e se ela ionship be ween ax bu den and FDI in lows was no uni e sal. The e was need o es ablish he
ela ionship be ween ax bu den and FDI in lows in any speci ic coun y o economic egion. Coun ies ha ely on he
p esump i e in e se ela ionship be ween ax bu den and FDI in lows o shape hei ax policy o a ac FDI in lows should ely
on empi ical esea ch indings unde aken in he coun y o economic egion.
Ayaya (2017) examined he e ec o public deb on o eign di ec in es men s in lows in Kenya. The independen a iable
was public deb as measu ed by qua e ly public deb in na u al loga i hm o m. The con ol a iables we e economic g ow h as
measu ed by qua e ly GDP, exchange a es as measu ed by qua e ly exchange a e. FDI in lows in Kenya we e he dependen
a iable and i was measu ed by FDI in lows in he coun y on a qua e ly basis. Seconda y da a was collec ed o a pe iod o 10
yea s (Janua y 2007 o Decembe 2017) on a qua e ly basis. The s udy employed a desc ip i e esea ch design and a mul iple
linea eg ession model was used o analyze he ela ionship be ween he a iables. The esul s o he s udy p oduced R-squa ed
alue o 0.278 which mean ha abou 27.8 pe cen o he a ia ion in FDI in lows in Kenya could be explained by he ou
selec ed independen a iables while 72.2 pe cen in he a ia ion was associa ed wi h o he ac o s no co e ed in his esea ch.
The s udy also ound ha he independen a iables had a s ong co ela ion wi h FDI in lows(R=0.527). ANOVA esul s showed
ha he F s a is ic was signi ican a 5% le el wi h an F s a is ic o 3.367. The esul s u he e ealed ha indi idually, public
deb , economic g ow h, exchange a es and in la ion a es we e no signi ican de e mine s o FDI in lows in Kenya. This s udy
ecommended ha he e was need o policy make s o egula e public deb le els p e ailing in he coun y bea ing in mind ha
hey in luenced FDI in lows in he coun y.
3. METHODOLOGY
Resea ch Design and Me hods
This s udy which is designed o asce ain impac o iscal policy on FDI in lows in Nige ia adop ed he ex-pos ac o esea ch
design. This design has been adjudged app op ia e as he e en unde s udy had al eady aken place. The esea che had no con ol
o e he a iables unde s udy simply because hey al eady exis . The ime se ies da a used o he s udy we e seconda y in na u e
and we e sou ced om Cen al bank o Nige ia S a is ical Bulle in (2023) and Na ional Bu eau o S a is ics annual abs ac . Fo
da a on a gi en a iable ha we e collec ed om mo e han one sou ce, cau ion was aken o ensu e consis ency o such da a. The
e o co ec ion model (ECM) analy ical echnique was adop ed in da a analysis om whe e decisions we e aken.
Model Speci ica ion
In a pape i led “Fiscal policy and in low o o eign in es men s in Nige ia inancial ma ke ”, Lenyie (2025), speci ied a model
as:
FI = α0 + β1CEXP + β2REXP + β3OILR + β4NOILR + ei ………………………… eqn1
Whe e:
FI = Fo eign In es men
CEXP = Capi al Expendi u e
REXP = Recu en Expendi u e
OILR = Oil Re enue
NOILR = Non-Oil Re enue
β1 β2 β3 β4 = Coe icien s
ei = e o e m
The abo e model is modi ied o sui he objec i e o he cu en s udy as below:
LOGFDI = β 0 + β1TAXR + β2GOVE + β3GDEBT + µ ………………………. eqn 2
Whe e:
FDI = Fo eign Di ec In es men
TAXR = Tax Re enue
GOVE = Go e nmen Expendi u e
GODEBT = Go e nmen Deb
β0 = Cons an
Chinweoke Nwaeze, Ph. D (2025), Global Jou nal o Economic and Finance Resea ch 02(11): 1283-1292
DOI URL:h ps://doi.o g/10.55677/GJEFR/17-2025-Vol02E11 pg. 1288
β1 β2 β3 β4 = Coe icien s
µ = E o e m
By ap io i expec a ion
β0 > 0, β1 < 0, β2 < 0, β3 < 0, and β4 < 0
Table 3.1 below shows he a iables and hei expec ed signs based on heo y in ui ion (Ap io i expec a ions)
Table 3.1: Ap io i Expec a ion
Va iables
Theo y In ui ion
Expec ed Sign
Tax Re enue
Highe axes migh de e o eign di ec in es men s whe e he ax bu den is
passed on o in es o s, hus leading o a dec ease in FDI
-
Go e nmen
Expendi u e
Inc eased go e nmen expendi u e on he c i ical sec o s o he economy such as
ag icul u e, indus y, educa ion and in as uc u e will a ac mo e FDI
+
Go e nmen Deb
Highe go e nmen deb migh lead o conce ns abou economic s abili y and
in la ion and hus, po en ially de e FDI
-
Sou ce: Resea che ’s Compu a ion, 2025
4. ANALYSIS AND RESULTS
Table 1: Desc ip i e s a is ics
S a is ics
LOG(FDI)
LOG(TAXR)
LOG(GOVE)
LOG(DEBT)
Mean
2.831965
3.253738
3.507696
3.856302
Maximum
3.494670
4.154619
4.296850
4.545280
Minimum
1.967501
2.351738
2.845749
3.343353
Skewness
-0.721202
-0.104557
-0.114185
0.555350
Ku osis
2.732575
2.221606
2.086042
2.332716
P obabili y
0.326001
0.712948
0.629881
0.417096
Obse a ion
25
25
25
25
Sou ce: Au ho ’s compu a ion (2025) om E- iews 10 so wa e package
Fo eign di ec in es men had a mean alue o 2.831965 wi h a maximum alue o 3.494670 and minimum alue o 1.967501. I
had skewness alue o -0.721202 and ku osis alue o 2.732575. I s skewness alue indica ed ha o eign di ec in es men
(FDI) in low was nega i ely skewed while he ku osis alue indica ed ha FDI was pla yku ic (i.e. 2.732575 < 3). Wi h
pla yku ic ku osis, he e is e idence ha FDI had less ex eme numbe o alues ha exceeded he sample mean sco e o
2.831965 and p obabili y alue o 0.326001 indica ed ha FDI had no mal dis ibu ion.
Tax e enue had a mean alue o 3.253738 wi h a maximum alue o 4.154619 and minimum alue o 2.351738. I had skewness
alue o -0.104557 and ku osis alue o 2.221606. I s skewness alue indica ed ha ax e enue (TAXR) was nega i ely skewed
while he ku osis alue indica ed ha TAXR was pla yku ic (i.e. 2.221606 < 3). Wi h pla yku ic ku osis, he e is e idence ha
TAXR had less ex eme numbe o alues ha exceeded he sample mean sco e o 2.221606 and p obabili y alue o 0.712948
indica ed ha TAXR had no mal dis ibu ion.
Go e nmen expendi u e had a mean alue o 3.507696 wi h a maximum alue o 4.296850 and minimum alue o 2.845749. I
had skewness alue o -0.114185 and ku osis alue o 2.086042. I s skewness alue indica ed ha go e nmen expendi u e
(GOVE) was nega i ely skewed while he ku osis alue indica ed ha GOVE was pla yku ic (i.e. 2.086042 < 3). Wi h
pla yku ic ku osis, he e is e idence ha GOVE had less ex eme numbe o alues ha exceeded he sample mean sco e o
2.086042 and p obabili y alue o 0.629881indica ed ha GOVE had no mal dis ibu ion.
Go e nmen deb had a mean alue o 3.856302 wi h a maximum alue o 4.545280 and minimum alue o 3.343353. I had
skewness alue o 0.555350 and ku osis alue o 2.332716. I s skewness alue indica ed ha go e nmen deb (DEBT) was
posi i ely skewed while he ku osis alue indica ed ha Deb was pla yku ic (i.e. 2.332716 < 3). Wi h pla yku ic ku osis, he e
is e idence ha Deb had less ex eme numbe o alues ha exceeded he sample mean sco e o 3.856302 and p obabili y alue
o 0.417096 indica ed ha DEBT had no mal dis ibu ion.
Table 2: ADF uni oo es esul s
Va iables
ADF Values
0.05 C i ical Values
O de o In eg a ion
Le el
1s Di e ence
Le el
1s Di e ence
D(LOGFDI)
-1.639398
-6.991446
-2.991878
-2.998064
I(1)
D(LOGTAXR)
-0.460658
-5.131617
-2.991878
-2.998064
I(1)
D(LOGGOVE)
0.450117
-7.975456
-2.991878
-2.998064
I(1)
D(LOGDEBT)
-1.610967
-4.492067
-2.991878
-2.998064
I(1)
Sou ce: Au ho ’s compu a ion (2025) om E- iews 10 so wa e package
Chinweoke Nwaeze, Ph. D (2025), Global Jou nal o Economic and Finance Resea ch 02(11): 1283-1292
DOI URL:h ps://doi.o g/10.55677/GJEFR/17-2025-Vol02E11 pg. 1289
F om he esul in able 2, none o he a iables was s a iona y a le el as hei indi idual ADF alues (in absolu e e ms) we e less
han hei espec i e c i ical alues a 5% le el. ADF alues o FDI, TAXR, GOVE and DEBT which we e (1.639398),
(0.460658), (0.450117) and (1.610967) in absolu e e ms we e less han he 0.05 c i ical alues. Based on his ou come, he e was
need o ca y ou he uni oo es a i s di e ence. A i s di e ence, he esul abo e showed ha all he a iables had ADF
alues ha exceeding hei c i ical alues a 5% le el o signi icance. ADF alues o FDI, TAXR, GOVE and DEBT which we e
(6.991446), (5.131617), (7.975456) and (4.492067) in absolu e e ms we e less han hei 0.05 c i ical alues. Thus, he a iables
we e in eg a ed o o de 1 (i.e. I(1)).
Table 3: Johansen coin eg a ion es esul
Hypo hesized No.
o CE(s)
T ace S a is ic
Max-Eigen
S a is ic
0.05 C i ical Value
T ace S a is ic
0.05 C i ical Value
Max-Eigen S a is ic
None*
69.36903
42.59975
47.85613
27.58434
A mos 1
26.76928
19.03254
29.76707
21.13162
A mos 2
7.736731
7.311792
15.49471
14.26460
A mos 3
0.424940
0.424940
3.841466
3.841466
Sou ce: Au ho ’s compu a ion (2025) om E- iews 10 so wa e package
Johansen coin eg a ion es was employed o de e mine he numbe o coin eg a ing equa ions o he exis ence o long un
equilib ium ela ionship amongs he a iables. The es adop ed T ace s a is ic and Max-Eigen s a is ic o do his. F om he
Johansen coin eg a ion es esul in able 3 abo e, i could be seen ha he e was one (1) coin eg a ing equa ion gi en ha he
only T ace s a is ic o 69.36903 exceeded (47.85613) a 5% c i ical le el. Simila ly, Max-Eigen s a is ic indica ed ha he e exis s
one (1) coin eg a ing equa ion as i s alue 42.59975 exceeded i s c i ical alue which 27.58434 a 5% c i ical le el. Based on
hese ou comes, he s udy concluded ha he e exis s long un equilib ium ela ionship among he a iables.
Table 4: VAR Lag O de Selec ion C i e ia
Lag
AIC
SC
HO
0
-3.724445
-3.477598
-3.662363
1
-8.245825*
-6.764745*
-7.873337*
Sou ce: Au ho ’s compu a ion (2025) om E- iews 10 so wa e package
Ha ing es ablished ha he a iables we e I(1) p ocess and he e was long un equilib ium ela ionship among he a iables, he
s udy employed e o co ec ion mechanism (ECM) echnique. Howe e , i was impo an o de e mine he app op ia e lag o be
used in ca ying ou he e o co ec ion mechanism (ECM) es . F om he esul o he selec ion c i e ia es i was e iden ha lag
1 was he app op ia e lag gi en ha i s in o ma ion c i e ion (AIC, SC and HQ) was smalle han ha o lag ze o.
Table 5: Pa simonious e o co ec ion mechanism (ECM) esul
Dependen Va iable: LOG(FDI)
Va iable
Coe icien
S d. E o
-s a is ic
P ob. Value
C
0.077326
0.039753
1.945177
0.0675
D(LOGTAXR(-1))
-0.400169
0.320640
-1.248030
0.2280
D(LOGGOVE(-1))
0.961629
0.433554
2.218014
0.0160*
D(LOGDEBT)
-0.254117
0.135503
-1.875357
0.0771**
ECM(-1)
-0.976317
0.218757
-4.463021
0.0001*
R-squa ed = 0.614007
Adjus ed R-squa ed = 0.528231
F-s a is ic = 7.158250
P ob. F-s a is ic = 0.001241
DW-s a is ic = 1.983603
*signi ican a 5% (0.05) le el; **signi ican a 10% (0.10) le el
Sou ce: Au ho ’s compu a ion (2025) om E- iews 10 so wa e package
F om he s udy, ax e enue had nega i e and insigni ican e ec on o eign di ec in es men in Nige ia. 1 pe cen inc ease in ax
e enue led o 0.40 pe cen decline in o eign di ec in es men (FDI) in low in Nige ia. This is because inc eased ax collec ion
by go e nmen de e s FDI especially i he ax bu den is passed on o he in es o s. This is also in line wi h he heo e ical
Chinweoke Nwaeze, Ph. D (2025), Global Jou nal o Economic and Finance Resea ch 02(11): 1283-1292
DOI URL:h ps://doi.o g/10.55677/GJEFR/17-2025-Vol02E11 pg. 1290
expec a ion. P obabili y -s a is ic o TAXR (0.2280) exceeded he es signi ican le el (0.05), indica ing ha ax e enue had
insigni ican e ec on o eign di ec in es men in Nige ia.
Go e nmen expendi u e had posi i e and signi ican e ec on o eign di ec in es men in Nige ia. 1 pe cen inc ease in
go e nmen expendi u e led o 0.96 pe cen inc ease in o eign di ec in es men (FDI) in low in Nige ia. This is in line wi h
heo e ical expec a ion as inc eased go e nmen expendi u e on c i ical sec o s o he economy like ag icul u e, indus y and
educa ion will a ac mo e FDI. P obabili y -s a is ic o GOVE (0.0160) was less han he es signi ican le el (0.05) indica ing
ha go e nmen expendi u e had signi ican e ec on o eign di ec in es men in Nige ia.
Go e nmen deb had nega i e and insigni ican e ec on o eign di ec in es men in Nige ia. 1 pe cen inc ease in go e nmen
deb led o 0.25 pe cen dec ease in o eign di ec in es men (FDI) in low in Nige ia. Highe deb bu den by go e nmen migh
lead o conce n abou economic s abili y and in la ion and hus discou age FDI in lows in o a coun y. This is in line wi h
heo e ical expec a ion. P obabili y -s a is ic o DEBT (0.0771) was less han he es signi ican le el (0.10) bu i exceeded he
es signi ican le el (0.05). Thus, he s udy concluded ha go e nmen deb had insigni ican e ec on o eign di ec in es men
in Nige ia.
E o co ec ion mechanism (-0.976317) appea ed wi h he expec ed nega i e sign and was signi ican a 5 pe cen le el. This
mean ha speed o adjus men o FDI om sho un o long un was abou 98 pe cen . This implied ha sho un disequilib ium
in o eign di ec in es men in low in Nige ia is adjus ed o long un equilib ium posi ion a he speed o 98 pe cen . This is a e y
high speed o adjus men .
Adjus ed R-squa ed (0.528231) indica ed ha 53 pe cen o changes in FDI in low in Nige ia a e due o changes in ax e enue,
go e nmen expendi u e and go e nmen deb . P obabili y F-s a is ic (0.001241) was less han he es signi ican le el (0.05) and
his indica ed ha he model adop ed o he s udy was eliable, app op ia e and signi ican and could be used o sound
policymaking. DW-s a is ic (1.983603) lay wi hin he accep able h eshold since 1.983603 < 4. This indica ed ha he e was no
p esence o au oco ela ion (Iyeli, 2010).
Discussion o Findings
Fi s , he s udy showed ha ax e enue had nega i e and insigni ican e ec on o eign di ec in es men (FDI) in low in Nige ia.
This inding con adic s Ozekhome (2022) and Boly, Coulibaly and Ke e (2019) who ound ha axa ion had signi ican e ec on
o eign di ec in es men in Nige ia. Howe e , he inding is in line wi h he wo ks o Ogege and Boloup emo (2020) and
Anichebe (2019) ha inc eased ax e enue could discou age o eign in es o s. Pe haps, his inding migh be a ibu ed o
mul iple axa ion egimes in he coun y which has con inued o se e as a disincen i e o o eign in es men in Nige ia. This is
agains he backd op ha businesses exis me ely o he pu poses o p o i making bu when he p o i o i ms is subjec ed o
mul iple o ms o axa ion, he FDI-seeking hos coun y no only losses he i ms ha ope a e in i bu new ones would no wan
o come in.
Second, he s udy ound ha go e nmen expendi u e had posi i e and signi ican e ec on FDI in low in Nige ia. This inding is
in consonance wi h he wo ks o Boly, Coulibaly and Ke e (2019) and O hmam, Yusop, Andaman and Ismail (2018). This inding
migh be a ibu ed o he inc eased agg ega e demand associa ed wi h imp o ed go e nmen expendi u e. Wi h inc eased
agg ega e demand, in es men is enhanced. O e he yea s, Nige ian go e nmen ’s expendi u e has been il ed mo e owa ds he
ecu en side and his has exace ba ed demand o goods and se ices. In his way, mo e o eign in es o s (and o eign di ec
in es men ) who a e desi ous o ha nessing he bene i s o inc eased agg ega e demand (as well as la ge ma ke c ea ed he ein)
migh ha e been a ac ed.
Thi d, he s udy showed ha go e nmen deb had nega i e and insigni ican e ec on FDI in low in Nige ia. This inding is in
com o mi y wi h Ayaya (2017) and Ogege and Boloup emo (2020) ha go e nmen deb is no a posi i e and signi ican
de e minan o FDI lows. Deb emains de imen al o he g ow h o all sec o s o a na ional economy including ha o Nige ia.
O e he yea s, Nige ia has con inued o ba le wi h inc easing deb p o ile (wi h a endan huge se icing cos s) and his has
a ec ed he abili y o he go e nmen o p o ide he much needed enabling en i onmen equi ed o a ac ing FDI in o he
coun y.
5. CONCLUSION AND RECOMMENDATIONS
Summa y o Findings
The pape made he ollowing indings.
1. Tax e enue o go e nmen had nega i e and insigni ican e ec on o eign di ec in es men in lows in Nige ia.
2. Go e nmen expendi u e had a posi i e and signi ican e ec on FDI in lows in Nige ia.
3. Go e nmen deb had a nega i e and insigni ican e ec on FDI in lows in Nige ia,
Conclusion
A lo o coun ies compe e o o eign di ec in es men in lows in o de o boos economic g ow h, c ea e jobs and imp o e
gene al wellbeing o ci izens. Fiscal policy ins umen s can be used o achie e hese goals by a ac ing FDI. Go e nmen
Chinweoke Nwaeze, Ph. D (2025), Global Jou nal o Economic and Finance Resea ch 02(11): 1283-1292
DOI URL:h ps://doi.o g/10.55677/GJEFR/17-2025-Vol02E11 pg. 1291
expendi u e had a posi i e and signi ican e ec on FDI in lows in Nige ia while go e nmen ax e enues and deb had nega i e
and insigni ican e ec s on FDI in lows. O e all, go e nmen ax e enues, go e nmen expendi u e and go e nmen deb
explained 53 pe cen cha ges in FDI in lows in Nige ia.
Recommenda ions
Based on he indings o he s udy, he ollowing ecommenda ions a e made in o de o a ac o boos FDI in lows in Nige ia.
1. The e is need o go e nmen o ensu e ha inc eased ax e enues a e used o und c i ical in as uc u es o se ices
ha bene i businesses as his will a ac mo e FDI.
2. Go e nmen should con inue o channel i s expendi u es o he p oduc i e sec o s o he economy such as ag icul u e,
educa ion, manu ac u ing, cons uc ion, e c. This will help imp o e he business en i onmen and hus a ac mo e FDI in lows o
he coun y.
3. Highe go e nmen deb s should be judiciously managed and used o inance p oduc i e in es men s in he coun y. This
will de ini ely ha e a posi i e e ec on FDI in lows o Nige ia.
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