Foreign Direct Investment Spillover and Nigeria's Domestic Investment

This study established the empirical relationships between domestic and foreign direct investment, and the impacts of absorptive capacity on FDI inflow using Nigeria's time series data form 1975 to 2012. Two multivariate equations were estimated, and using the ECM models with long-run normalized cointegration procedures, results of the analyses reveal that in the long run, FDI and domestic investment impacted positively and significantly on each other (though the variations in domestic investment are not largely accounted for by FDI inflow) and that Nigeria's absorptive capacity was low as each of human capital, financial development and infrastructure accounted for less than 10% of variations in domestic investment and less than seven percent variations in FDI respectively. Human capital development, provision of security, deepening of Nigeria's democracy as well as intervention in electricity generation/transmission/distribution were recommended so as to boost domestic investment and FDI inflow to Nigeria, provide the right climate for economic diversification, and build a knowledge economy capable of competing favourably beyond the 21st century.