FISCAL DECENTRALIZATION AND FOREIGN DIRECT INVESTMENT INFLOWS IN NIGERIA: EVIDENCE FROM REVENUE AND EXPENDITURE DECENTRALIZATION, 1985–2024

Abstract

This study examined the impact of fiscal decentralization on the foreign direct investment (FDI) in Nigeria for the period 1985 to 2024. The study considers revenue fiscal decentralization, expenditure fiscal decentralization, and the interactive effects of both. Time series annual data from Central Bank of Nigeria, UNCTAD, and World Bank was used. This data was subjected to the analysis of Autoregressive Distributed Lag (ARDL) Model and the Error Correction Mechanism (ECM). The results showed that revenue fiscal decentralization has a significantly positive effect on the level of FDI whereas the negative effects of expenditure fiscal decentralization and the interaction between revenue and expenditure fiscal decentralization on the flow of FDI were evident. The ECM shows the existence of a long run equilibrium in all the variables, where the rate of adjustment is 36.6 percent per year. In conclusion, this paper establishes the importance of fiscal decentralization especially revenue fiscal decentralization in attracting FDI in Nigeria.