Comparative Analysis of Regulatory Quality and Foreign Direct Investment (FDI) Inflows in Nigeria and South Africa
Year: 2025
Type: article
Abstract: This study evaluated the effect of regulatory quality (REQ) on foreign direct investment (FDI) inflows in Nigeria and South Africa from 1996 to 2023. The specific focus of the research is to ascertain: (i) what REQ have on FDI inflow to both countries; (ii) whether REQ affects FDI inflows into the South African economy than into to Nigerian economy. REQ index was sourced from the WGI database (2023), FDI inflows were sourced from the World Bank database (2023), while exchange rate (EXR), inflation rate (IFR), and gross domestic product growth rate (GDPG) were sourced from the Central Bank of Nigeria Statistical Bulletin (2023). The study adopted the Robust Regression Analysis (RRA). This comparative study evidenced that though REQ is a key FDI inflows driver in both countries, its effect is more evident in South Africa than in Nigeria. Similarly, GDPG plays a more meaningful role in enhancing FDI inflows in South Africa than in Nigeria. However, Nigeria is highly sensitive to inflationary pressures and exchange rate instability compared to South Africa. Consequently, the Nigerian government needs to prioritize stabilizing its macroeconomic environment over other policies. To achieve this, the Nigerian government should reduce inflationary pressures and manage its exchange rate volatility. There is also a need for the Nigerian government to strengthen the REQ and ensure policy consistency will further improve investor confidence. Meanwhile, the South African government needs to address its structural issues, which may deter the country from enjoying the developmental benefits of FDI inflows. Overall, government of both countries needs to adopt targeted reforms to improve absorptive capacity, infrastructure development, and efficient capital utilization will be imminent to enjoy the developmental benefits of FDI.
DOI: 10.14419/aj73xt65
Institutions: Dennis Osadebay University, Covenant University
Subfield: Strategy and Management
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4416247938