IMPACT OF DEBT SERVICE ON FOREIGN DIRECT INVESTMENT IN NIGERIA
Jonah O. Arumona, PhD, Lambe Isaac, PhD and Forongn A. Dore
Volume 4 Issue 1
Abstract
Foreign direct investment is crucial for the economic development of developing nation due to its contributions as source of external inflows into a host country, which are often determined by the debt level of a country. However, excessive debt can lead to debt servicing burdens, potentially crowding out investments in essential public services, as well as increase the risk of debt distress, making investors cautious about investing in the country. Therefore, the main objective of this study is to investigate the impact of debt service on foreign direct investment in Nigeria from 1984 to 2022. The data used for the study were sourced from the Central Bank of Nigeria Annual Statistical Bulletin. The Auto-Regressive Distributed Lag model was used to analyze the data. The findings revealed that long run relationship exists between debt service and foreign direct investment in Nigeria. Specifically, the study revealed that total debt service has positive and significant impact on foreign direct investment; while total debt has negative and significant impact on foreign direct investment. Based on the findings, the study recommends that borrowing should be minimized and other sources of revenue generation should be exploited by the Nigerian government in order to increase the country’s revenue base thereby mitigating the effect of debt on investment. Keywords: Central Bank of Nigeria, Debt Service, Exchange Rate, Foreign Direct Investment, Total debt.
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