Foreign Direct Investment and Revenue Generation in Nigeria (1970-2018)

Abstract

This study examined the effect of Foreign Direct Investments flow to agriculture, manufacturing and processing, and mining and quarrying subsectors of the Nigerian economy on revenue generation in Nigeria proxied by company income tax and petroleum profit. The six hypotheses that guided the study were formulated in line with the stated objectives and relevant theoretical as well as empirical literature were reviewed and evaluated. The relevant data were extracted from the annual statistical bulletin of the central Bank of Nigeria. Unit root tests were carried out using Augmented Dickey Fuller method which revealed that the variables were integrated at different orders. The autoregressive distributive lag/bound test was used to explore the long run relationship existing among the variables in each model and the result of the bound test showed that the variables in the two models are co-integrated thus the study proceeded in evaluating the long run as well as the co-integrating form in each model. It was found that Foreign Direct Investments to agriculture does not enhance the generation of company income tax and petroleum profit tax in Nigeria in the long run as its coefficient turned out negative and insignificant whereas the coefficient of manufacturing and processing was positive but not significant in relations with company income tax, but negative and non-significant with respect to petroleum profit tax. Going further, Foreign Direct Investments to mining and quarrying had positive and significant relationship with both company income tax and petroleum profit tax generation in Nigeria.  The study recommended that Government can by the use of moral suasion; appeal to foreign investors to plough back about 70% of their earnings so as to expand their output as such expansion will invariably increase the company income tax and petroleum profit tax revenues of government. Tax holidays should be granted to investors in Agriculture and Manufacturing and Processing sectors so as to encourage Foreign Direct Investments inflow to these sub-sectors which will no doubt increase output, stimulate growth and increase the government tax revenue generation capacity in Nigeria.

Keywords: Agricultural Sector, Company Income Tax, Foreign Direct Investment, Manufacturing sector, Petroleum Profit Tax, mining and quarrying sector

Article Review Status: Published

Pages: 10-37 (Download PDF)

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