Panel Data Analysis of the Determinants of Foreign Direct Investment in Nigerian States

This study applies panel data econometric methods to investigate the determinants of foreign direct investment inflows at the sub-national level in Nigeria, using a balanced panel dataset covering all 36 states and the Federal Capital Territory over the period 2010 to 2022. Existing research on foreign direct investment determinants in Nigeria has largely focused on the national aggregate level, neglecting the substantial heterogeneity in investment climates and economic fundamentals across Nigerian states that makes sub-national analysis both necessary and policy-relevant. Annual data on foreign direct investment inflows at the state level are sourced from the Nigerian Investment Promotion Commission's investment database, and potential determinants including state gross domestic product, infrastructure quality indices, human capital indicators, corporate tax rates, ease of doing business ratings, security incident counts, and port or airport access are assembled from the National Bureau of Statistics, the World Bank Subnational Business Environment Survey, and the Nigerian Office for Trade Negotiations. Fixed effects, random effects, and system generalised method of moments panel estimators are applied, with the Hausman test used to guide model selection between fixed and random effects specifications and the Arellano-Bond test applied to detect first and second-order autocorrelation in the system GMM residuals. Results robustly identify infrastructure quality, human capital, and security conditions as significant positive determinants of state-level foreign direct investment inflows, while market size effects are weaker in sub-national specifications. Keywords: panel data, foreign direct investment, GMM estimation, Nigerian states, investment determinants