Public Sector Budget and Foreign Direct Investment in Nigeria

The study investigated the effect of public sector budget on foreign direct investment in Nigeria. The ex-post facto research design which investigates possible cause-effect relationship, was adopted for this study. The population for this study is the Nigerian economy from the year of Nigeria independence to date. Using Census sampling technique, a sample of thirty-four (34) years (1990-2023) was considered for this study. Considering the objectives of this study and the nature of data to generate, the secondary source of data collection was employed in this study. The study employed descriptive statistics to summarize data trends and unit root tests to confirm stationarity of variables. Diagnostic and stability tests were used to ensure model reliability and validity. The ARDL model was applied to assess both short-run and long-run effects of government expenditure on investment. Moderated multiple regression was used to evaluate the interaction effect of exchange rate and inflation rate on the relationship between government spending and investment. The findings from this study revealed that budgeted health expenditure significantly influences foreign direct investment (FDI) in Nigeria over time, as evidenced by the statistically significant lagged effects observed in the ARDL analysis. Furthermore, the Moderated Multiple Regression (MMR) analysis suggests that inflation rate moderately affects the relationship between government budget expenditures and FDI, with a marginally significant interaction term. This implies that macroeconomic stability, particularly inflation control, plays a role in how government spending translates into FDI inflows, emphasizing the need for sound fiscal and monetary policies to enhance investment attractiveness. The study further suggested that the Nigerian government should prioritize and increase budgetary allocations to the health sector, ensuring effective utilization to improve workforce productivity and investor confidence, thereby boosting FDI inflows. Policymakers need to develop comprehensive strategies to enhance the attractiveness of the education and agriculture sectors for foreign investors, possibly through reforms, incentives, and infrastructure improvements.