Impact of Political Stability on Foreign Direct Investment Inflows in Nigeria

Abstract

Foreign direct investment (FDI), through its contributions to expanded employment opportunities, capital formation, technological growth, technology transfer, and productivity, has been perceived as a key factor in economic advancement in developing economies, particularly Nigeria. However, this largely depends on the nature of the political environment. Despite these gains, Nigeria still faces many challenges in further strengthening its investment environment through political stability (PS). This study investigates the impact of PS on FDI inflows in Nigeria. A time-series analysis was conducted using the ARDL model on secondary data covering 1996 to 2024. The data employed were obtained from the Central Bank of Nigeria Statistical Bulletin, as well as the World Bank WDI and WGI. The results show that political stability (with coeff. = -12.5012; p = 0.0175) exerts a negative and significant influence on FDI inflows in the study area. This suggests that PS undermines investor confidence, thereby limiting the growth of capital inflows into Nigeria. Building on this finding, the study suggests that the government should strengthen political stability by creating a safer and more predictable environment for both domestic and foreign investors. It also recommends improving foreign exchange policies to attract and sustain cross-border economic cooperation.