Foreign direct investment and infrastructural development in Nigeria: Comparative analysis of inflows from China, United States and the United Kingdom

Abstract

This study compared FDI inflows on infrastructural development in Nigeria from three major trading and investing partners - the United States (USA), the United Kingdom (UK), and China. The study used time series data from 2005 to 2024, sourcing data from the Central Bank of Nigeria Statistical Bulletin, World Bank’s Development Indicators, and the African Development Bank database. The study employed preliminary tests of Augmented Dickey-Fuller and Phillips-Perron unit root, while the main estimation technique was the Autoregressive Distributed Lag Model. The dependent variable is access to electricity, proxied for infrastructural development, while the independent variables include Chinese foreign direct investment, UK’s foreign direct investment, USA’s foreign direct investment, government effectiveness, financial development, gross domestic product growth rate, and exchange rate. The series considered exhibits a mixed order of integration, while the bounds test demonstrates the existence of a long-run relationship among the variables. The empirical findings indicate substantial variation in how FDI affects infrastructure, contingent upon the source country and the quality of institutions. Chinese FDI has a significantly negative effect on electricity access, worsened by governance inefficiencies, while UK FDI consistently shows a positive impact, enhanced by effective governance. US FDI has a persistently negative influence, indicating weak institutional frameworks. The study highlights the pivotal role of institutional quality in shaping the effectiveness of FDI in promoting infrastructure development in Nigeria. Also, among other conclusions, enhancing governance structures is crucial for improving the effectiveness of FDI; this can be achieved by strengthening transparency and regulatory frameworks.