Macroeconomic Factors and Foreign Direct Investment: A Comparative Study of Nigeria and South Africa

This study examined macroeconomic factors that determine foreign direct investment into Nigeria and South Africa. The effect Time series data was sourced from Central Bank of Nigeria Statistical Bulletin and World bank data base from 1987-2017. Net foreign direct investment to gross domestic product was modeled as the function of exchange rate, real interest rate, real gross domestic product, inflation rate and money supply. The null Hypotheses (H0) were tested at 0.05 level of significance, Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The adjusted R2 shows that the independent variables can explain 45.2 percent in foreign direct investment while the variables explained 53.4 percent of foreign direct investment to South Africa. the study found that money supply, inflation rate, gross domestic products and real interest rate have positive relationship with foreign direct investment inflow into Nigeria economy while exchange rate have negative effect on foreign direct investment inflow to Nigeria economy. The positive effect of the variables confirms the a-priori expectation of the study. The study found that money supply, real interest rate and inflation rate have negative effect on foreign direct investment to South Africa while gross domestic product and exchange rate have positive effect on foreign direct investment to South Africa. The study recommends that Policies of the government to ensure price stability and macroeconomic stability are required to attract foreign direct investment into the country. Government should formulate sound foreign exchange rate policy that will attract foreign direct investment through exchange rate stability.