Macroeconomic Variables and Foreign Direct Investment: An Analysis of the Oil and Gas Sector in Nigeria

Abstract

Foreign direct investment (FDI) has historically been significantly influenced by Nigeria’s oil and gas industry, but ongoing inflationary pressures continue to threaten the stability of investments. The overall increase in price levels, or inflation, affects macroeconomic factors including interest rates, currency rates, and investor confidence. Nigeria’s inflation rate has fluctuated over time, which has affected capital inflows into important economic sectors. This study investigated the relationship between macroeconomic variables, sustainable development goals (SDGs), and foreign direct investment (FDI) in Nigeria while focusing on the oil and gas sector in Nigeria. The study specifically examined how inflation, exchange rate, global oil price, SDG goal 8 of economic growth measured by economic growth rate, and the control variable interest rate impacted FDI in Nigeria using time series data from 1990 till 2023. The study adopted the ex post facto research design and secondary data from the reports of the World Development Index, Central Bank of Nigeria, National Bureau of Statistics, and the Organization of Petroleum Exporting Countries were used in this study. The estimation techniques used in this study was the Autoregressive Distributive Lag. Findings showed that inflation, exchange rate, and the control variable interest rate had negative and significant impacts with significant probability values of 0.0138, 0.0000, and 0.0263 (lower than 0.05) while economic growth rate, global oil prices, and the second control variable sustainability index had positive and significant impacts on Nigeria’s foreign direct investment with significant probability values of 0.0312, 0.0000, and 0.0334 (lower than 005). The study thus recommended that the Central Bank should focus more in managing inflation by controlling excess money in the economy.