EFFECT OF INSECURITY ON FOREIGN DIRECT INVESTMENT IN NIGERIA

AYENI CHRISTIANA OYINDAMOLA

20/BFN/1494

BEING A PROJECT SUBMITTED TO THE DEPARTMENT OF BANKING

AND FINANCE, FACULTY OF FINANCIAL STUDIES, OSUN STATE
POLYTECHNIC, IREE IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF HIGHER NATIONAL DIPLOMA
(HND) IN BANKING AND FINANCE.

OCTOBER, 2022

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 CERTIFICATION PAGE

This is to certify that this research work was carried out by AYENI CHRISTIANA
OYINDAMOLA with Matric Number 20/BFN/1494 in Partial Fulfillment of the
Requirement for the Award of Higher National Diploma (HND) in Banking and Finance.

________________________ ________________________

Mrs. Daisi, T. Date

Project Supervisor

________________________ ________________________

Mrs. O. A. Babalola Date

Head of Department

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 DEDICATION

This work is dedicated to MRS AYENI ELIZABETH.

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 ACKNOWLEDGEMENT

My appreciation goes to the Almighty God, the creator of the universe, who has given me the

opportunity to complete this project research despite all stresses encountered. All praises and

adoration be unto him.

My acknowledge deep sense of gratitude to my supervisor Mrs Daisi Taiwo Florence for her

support and educative supervision. My profound appreciation also goes to the Head of

Department of Banking and Finance Mrs Babalola O.A and all the lecturers in the department.

May the Lord continue to strengthen you.

My special thanks also goes to my mother (Mrs Ayeni Elizabeth) my brothers and sisters for

your love, support, encouragement and financial assistance, may you live long to reap the fruit of

your labour and miss Olamilekan Olamide. My appreciation also goes to my friends and

colleagues in school.

Thanks a lot, I love you guys, God bless you all.

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 TABLE OF CONTENTS

Page

Title page I

Certification ii

Dedication iii

Acknowledgements iv

Abstract - v

CHAPTER ONE: INTRODUCTION

1.1. Background to the Study 1

1.2 Statement of the Problem 3

1.3 Research Questions 4

1.4 Objectives of the Study 4

1.5 Research Hypotheses 4

1.6 Significance of the Study 5

1.7 Scope of the Study 5

CHAPTER TWO: LITERATURE REVIEW

2.1. Conceptual Review 6

2.2. Theoretical Review 14

2.3. Empirical Review 16

2.4. Gap in Literature 18

CHAPTER THREE: METHODOLOGY

3.1. Research Design 19

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3.2 Sampling Technique 19

3.3 Methods of Data Collection 19

3.4 Description of variables 19

3.5 Model Specification 20

3.6 Method of Data Analysis 20

CHAPTER FOUR: RESULTS AND DISCUSSION

4.1 Descriptive Statistics 22

4.2 Unit Root Test 23

4.3 ARDL Bound Test 24

4.4 Wald Coefficient Test 26

4.5 Diagnostic Test 27

4.6 Test of Hypotheses 27

4.7 Discussion of Findings 28

4.8 Implication of Findings 29

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATION

5.1 Summary of the Findings 30

5.2 Conclusion 30

5.3 Recommendations 31

5.4 Contributions to Knowledge 31

5.5 Limitations of the Study 32

5.6 Suggestions for Further Studies 32

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References 33

Appendix 38

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 Abstract

The study examined the effect of insecurity on foreign direct investment in Nigeria for the period
of thirty one years, 1990-2020. Secondary data was collected from CBN statistical bulletins,
tradingeconomics.com, and World Data Indicator (WDI). The study employed a correlational
research design. The study adopted foreign direct investment as dependent variable, defense
expenditure, internal security and terrorism index represent independent variables, while with
population was used as control factor. Descriptive statistics was used to summarize the data
whereas the Autoregressive Distributed Lag (ARDL) approach revealed the existence of co-
integration, long run, and short run dynamics through the use of an Error Correction Model
(ECM). The study revealed that short-run impact flows from terrorism index, internal security
and defense security to foreign direct investment. Likewise, in the long run, defense security has
a positive significant effect on FDI (coefficient=0.012313; p-value=0.0045<0.05), moreover,
internal security has a positive although insignificant effect on FDI (coefficient = 0.005876; p-
value=0.1084>0.05) in the long run. However, terrorism index has a negative significant effect
on FDI (coefficient = 0.523045; p-value=0.0003<0.05) in the long run. The ECM(-1) of -
0.886268 implies that, the short-run discrepancies are being adjusted and incorporated from the
short run to the long-run dynamics at 88.6% annually. Thus, the study concluded that insecurity
has negative and significant effect on FDI inflows to Nigeria. The study recommends that
additional money should be spent on internal security which involve investing in more
sophisticated weapons and implementing a pay structure for security personnel to increase their
motivation to fight terrorism. Also, the study suggested that funding for the military and other
counter-terrorism equipment should be strengthened, and this should come from the provision of
high-level defense in the national budget.

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