Empirical Analysis of Institutional Factors and Foreign Direct Investment Inflows in Nigeria’s Non-Oil Sector

Foreign direct investment in Nigeria's non-oil sector is critical for economic diversification, and empirical analysis of how institutional quality factors shape FDI inflows in this sector provides evidence for policy reform prioritisation. This study empirically analysed the relationship between institutional quality dimensions and FDI inflows to Nigeria's non-oil sector (manufacturing, agriculture, ICT, and services) for the period 2005 to 2022, using annual time-series data from the CBN Statistical Bulletin, UNCTAD FDI Database, and World Bank Governance Indicators. Institutional quality was measured by rule of law, control of corruption, regulatory quality, government effectiveness, political stability, and voice and accountability. FDI inflows to non-oil sectors were disaggregated by sector from NBS Investment Data. Autoregressive distributed lag bounds testing was employed to assess both short-run and long-run relationships. Results showed that regulatory quality had the strongest long-run positive effect on non-oil FDI inflows (coefficient = 0.58, p < 0.001). Control of corruption was significantly positive in the long run (coefficient = 0.44, p < 0.01). Political stability had a short-run positive effect on FDI that was not sustained in the long run. Government effectiveness showed a growing significance post-2015, coinciding with institutional reform periods. Market size was confirmed as a significant control variable. The study provides sector-disaggregated evidence on the institutional FDI nexus in Nigeria and recommends regulatory simplification and anti-corruption enforcement as priority institutional reforms for attracting non-oil FDI. Keywords: foreign direct investment, institutional quality, non-oil sector, Nigeria, ARDL bounds testing