The Dynamics of Financial Sector Development and FDI Inflow in Nigeria: An Empirical Analysis

Effective international business transactions rely not only on the presence of financial intermediaries but also on their operational efficiency. As a result, multinational firms must understand the evolving nature of financial sector development, particularly in emerging economies such as Nigeria. In this context, this study investigates how financial sector depth, access, and efficiency influence foreign direct investment (FDI) inflows in Nigeria from 1981 to 2021, employing the Auto Regressive Distributed Lags (ARDL) regression model as the analytical method. The evidence of limited financial institution depth suggests that Nigeria’s financial sector lacks the capacity to adequately support large-scale business activities. In contrast, financial sector access and efficiency have a significant positive effect on FDI inflows in both the short and long run. Exchange rate depreciation significantly drives FDI inflows in the short and long run, while the short-run inflationary effect is insignificant; however, inflation significantly encourages FDI inflows in the long run. Consequently, the study recommends that international investors carefully assess both financial sector conditions and broader macroeconomic factors when making investment decisions in Nigeria.