The Cost of Terrorism on Inward Foreign Direct Investment in Nigeria

As the world continues to converge into a global village, cross border trade and investments have become increasingly essential for the economic growth of several countries. Foreign direct investment (FDI) has become pivotal to economic growth especially in developing countries. Due to its numerous benefits countries strive to ensure favourable environments for potential FDI while minimising the possible hindrances. One of such hindrances is terrorism which has been reported across several countries including Nigeria to have a negative effect on FDI. In Nigeria, despite the burgeoning studies in this discourse, three important gaps remain. Firstly, past empirical researches have either focused on terrorism as an aggregate variable or looked at just one form of terrorism, thereby making the actual relationship between terrorism and FDI unclear. Secondly, while the role of natural resources has been analysed as a determinant of FDI, the literature has not evaluated if it has any role on the terrorism/FDI relationship. Thirdly, the regionalised and sectorial effect of terrorism on FDI has not been explored. This thesis addressed these gaps.

Adopting a mixed method approach both quantitative and qualitative analyses were carried out. Quantitatively, this study employed an autoregressive distributed lag (ARDL) model to examine the long and short run relationship of variables between 1970 and 2017. A thematic analysis of fifteen (15) semi-structured interviews was subsequently used to analyse qualitative data. Both quantitative and qualitative analyses showed that total terrorism was negatively associated with inward FDI leading to loss of millions of dollars. The result of the quantitative analysis of secondary data confirmed that total terrorism in Nigeria has a negative relationship with inward FDI both in the short and long run however, this relationship is statistically significant only in the short run. In addition, terrorism by the Boko Haram and the Fulani Herdsmen were also found to have a non-statistically significant but negative relationship with FDI in the short and long run while Niger Delta Militants with the highest negative impact revealed a statistically significant relationship with inward FDI in short- and long-run Nigeria. Crude oil production was found to have a positive effect on the inflow of FDI into Nigeria and its presence has a moderating effect on the negative impact of terrorism on FDI I the short run.

Based on these results, the thesis contributes to the terrorism/FDI literature in Nigeria by assessing both the total and subsets of terrorism as they relate to inward FDI. It further reveals the moderating role of crude oil production on the negative effect of terrorism on the inflow of FDI. The research also provides a methodological contribution using a mixed method approach. It is recommended that government invest more in counterterrorism measures to curb terrorism in the country and also seek foreign aid from international organisations. Furthermore, more development should be channelled to the Niger Delta region to improve the welfare of the host communities wherein the MNEs operate. Finally, more efforts should be paid to the diversification of the economy and the improvement of existing institutional frameworks within the Nigeria economy.