NIGERIAS FOREIGN INVESTMENT DETERMINANT:

A MULTIVARIATE ANALYSIS APPROACH

By
Iwuagwu, Chukwuma E.
Department of Statistics
Abia State Polytechnic, Aba
Phone: 08037088879
Email: iwuagwuchuks@gmail.com
&
Nwankwo, Christian C.
Department of Statistics,
Nnamdi Azikiwe University Awka.
Phone: 07067966329
&
Nwosu, Moses Obinna,
Statistics Department,
Abia State Polytechnic, Aba
Phone: 08063900942
Email: abinnogoes@gmail.com
&
Ajibade, F. Bright
Department of General Studies,
Petroleum Training Institute,
Effurun,
Delta State.
Equalright_bright@yahoo.com

Abstract
The Paper focuses on the variables that are used to determine international investment.
Data was collected from secondary source and was analysis with multivariate analysis.
The study found out that, there are factors which determine international investment
position. The factors are Net Assets, Net Liabilities and Net Direct Investment in
Reporting Economy.
All these factors are significantly correlated.
Key words: Investment, Assets, Liabilities, Factor Analysis

1.1

INTRODUCTION

Foreign investment is the investment of resources by an individual, firm or government

outside the home country. It is a process whereby people in one country obtain ownership
of assets for the purpose of gaining control over the production and other activities of the
firm in a foreign country (Kalemli and Sayek, 2006).
Foreign investment is a key for a developing economy because it provides employment
for the youths, help in technology development and improve productivity. Anytime Nigeria
capital is invested abroad our currency earnings are reduced (that is a liability to us).
On the other hand, overseas investment in Nigeria increases these earnings that is it
serves as an assets to the country Nigeria. As part of effort to develop our economy, the
federal government has developed packages of incentives for various sectors of the
economy which will help to provide enabling environment that is conducive to the growth
and development of industries and encourage economic interactions between Nigeria and
other nations.
1.2

OBJECTIVE

This paper is aimed at the following objectives:

(1)

To ascertain the international investment position of Nigeria

(2)

To establish variables that will be used to determine investment position.

(3)

To determine whether the variables are related and establish whether they are
significant.

1.3

HYPOTHESIS

Ho : The variables are not significantly correlated.

H 1 : The variables are significantly correlated.

2.1

LITERATURE

Obide and Abu (2010) investigated the determinants of foreign direct investment in
Nigeria. The error correction technique was employed to analyse the relationship between

foreign direct investment and its determinant. The results reviewed that, the market size
of the host country; deregulation, political instability and exchange rate depreciation are
the main determinant of foreign direct investment in Nigeria.
Olusanya (2013), looked at the impact of foreign direct investment inflow on economic
growth in a pre and post deregulated Nigeria economy. The analysis disaggregates the
economy into three period 1970 to 1986, 1986 to 2010 and 1970 to 2010 to test the
causality between foreign direct investment inflow (FDI)and the economic growth (GDP).
However, the result of the causality test shows that there is causality relationship in the
pre-deregulation era that is (1970 - 1986) from economic growth (GDP)to Foreign Direct
Inflow (FDI) but there is no causality relationship in the post deregulation era (1986
2010) between economic growth (GDP) and Foreign Direct Inflow. It also showed that
foreign direct investment inflow drive foreign direct investment inflow into the country.
Salamiand Oyewale (2013) studied the relationship between international trade flows and
employment in Nigeria for the period 1990 to 2010 using time series estimation
techniques. It found significant link between foreign direct investment flows and
employment in Nigeria both in the short-run and long-run. However, external factors such
as real effective exchange rate, import rate and internal factors in explaining employment
rate in Nigeria.

3.0

METHODOLOGY

Data for the research was collected through secondary sources. Investment information
was collected from the report published by Central Bank of Nigeria (CBN). The factors are
base on international Assets and Liabilities of our country, Nigeria.
The selection of variables was done using multivariate analysis, this consists of several
methods. For the purpose of this study, factor analysis method was adopted.
Factor analysis is a method of investigating whether a number of variables of interest are
linearly related to a small number of unobservable factors (Tryfos1997).
Factor analysis removes redundancy or duplication from a set of correlated variables.
After performing factor analysis, fewer variables are obtained which represents the rest of
the variables. The Principal Component Analysis was used to study the pattern of
correlation among observed variables and to reduce a large number of observed
variables to a smaller number of factors.
3

4.1

ANALYSIS

CORRELATION MATRIX
The main reason for the computation of correlation is to identify the variables under
investment factors which are not related to other variables. The variables are related to
each other. The table below showed the correlation matrix.
Table 4.1
Correlation Matrix for Assets
Item

X1

X2

X3

X4

X5

X6

X1

1.00

X2

0.959

1.00

X3

0.964

0.988

1.00

X4

0.965

0.989

1.00

1.00

X5

0.952

0.976

0.994

0.992

1.00

X6

0.952

0.976

0.994

0.992

1.00

1.00

X7

0.977

0.970

0.950

0.952

0.983

0.933

X8

-.735

-.825

-.831

-.834

X9

0.949

0.998

0.986

0.987

0.974

0.974

0.965

-.817

1.00

X10

0.949

0.998

0.986

0.987

0.974

0.974

0.965

-.817

1.00

1.00

X11

0.979

0.977

0.958

0.960

0.940

0.940

0.999

-.738 0.971

0.971

1.00

X11

X12

-.806

X7

X8

X9

X10

X11

1.00

-.806

-.708 1.00

Table 4.2 Correlation Matrix for Liabilities

Item

X1

X2

X3

X4

X1

1.00

X2

0.970

1.00

X3

0.966

0.893

1.00

X4

0.953

0.873

0.997

1.00

X5

0.973

0.908

0.997

0.989

1.00

X6

0.959

0.883

0.996

0.989

0.998

1.00

X7

0.996

0.967

0.972

0.960

0.978

0.964

X8

0.591

0.451

0.550

X9

0.406

0.254

0.370

0.369

0.370

0.369

0.362

0.975 1.00

X10

0.056

-.112

0.054

0.064

0.042

0.049

0.018

0.922 0.922 1.00

X11

0.917

0.957

0.844

0.818

0.865

0.846

0.910

0.161 0.161 -.219 1.00

X12

0.687

0.763

0.607

0.570

0.641

0.626

0.626

-.020 -.020 -.386 -.813

1.00

X13

0.965

0.947

0.926

0.910

0.938

0.923

0.923

0.341 0.341 -.006 0.936

0.666

0.545

X5

0.553

X6

X7

X8

X9

X10

X13

1.00

0.549

0.552 1.00

1.00

From the correlation matrix, for both Assets and Liabilities above all the variables relates
each other. The result indicates that, there is an acceptable correlation among the
variables which signify that the factor model is appropriate.
FACTOR EXTRACTION
Based on the variables that were used in the determination of investment position,
Principal Component (PC) technique has been adopted for initial factors. In Principal
Component Analysis, linear combinations of the observed variables are formed.
In order to know how many factors, two methods have been used and they are Eigen
value and Scree plot.
EIGEN VALUE
Table 4.3 and 4.4 shows total variance explained after running principal component. From
the table, it indicates that for Assets only one Eigen value that is greater than one and
liabilities two Eigen values that is greater than one. This indicates that there are only three
factors. The principal component combination has accounted for 95.072 percent and
94.114 percent respectively.
Table 4.3 Showing Total Variance Explained for Assets
Total Variance Explained
Initial Eigenvalues

Component
Total
1
2
3
4
5
6
7
8
9
10
11
12

11.409
.391
.115
.062
.014
.006
.004
3.652E-006
1.130E-016
4.103E-017
-1.177E-018
-2.806E-016

% of
Cumulative
Variance
%
95.072
95.072
3.256
98.327
.958
99.285
.519
99.804
.119
99.923
.048
99.971
.029 100.000
3.043E-005 100.000
9.414E-016 100.000
3.419E-016 100.000
-9.810E-018 100.000
-2.339E-015 100.000

Extraction Sums of
Squared Loadings
Total
% of
Variance
11.409
95.072

Table 4.4 Showing Total Variance Explained for Liabilities

Total Variance Explained
Component
Initial Eigenvalues
Extraction Sums of Squared
Loadings
Total
% of
Cumulative
Total
% of
Cumulative
Variance
%
Variance
%
1
10.389
74.206
74.206
10.389
74.206
74.206
2
2.787
19.910
94.116
2.787
19.910
94.116
3
.511
3.653
97.770
4
.205
1.468
99.237
5
.068
.483
99.720
6
.026
.186
99.906
7
.009
.066
99.972
8
.004
.028
100.000
9
2.375E-016 1.696E-015
100.000
10
1.466E-016 1.047E-015
100.000
11
1.783E-017 1.274E-016
100.000
12
100.000
-1.005E-016 -7.180E-016
13
100.000
-2.252E-016 -1.608E-015
14
100.000
-3.199E-016 -2.285E-015
Extraction Method: Principal Component Analysis.
SCREE PLOT
Examining the total variance associated with each factor in scree plot in figure 1 and 2
below. We find only one factor in figure 1 and two factors in figure 2. It shows large factors
as it provides steep plot from the other factor in figure 1 and 2. It can be seen that the
lines is almost flat meaning, that each successive factor is accountable for smaller and
smaller amount of the total variance.
Figure 1

Assets

Figure 2

5.1

Liabilities

FINDINGS

1)

From correlation matrix, it indicated that the variables are correlated

2)

The Eigen values conducted shows that total variance explained by the
variables for Assets is 95.072 percent and liability at 94.116 percent

3)

The extraction of the variables using both Eigen values and Scree plot
indicated one value for Asset and two variables for Liabilities.

These variables are Net Asset, Net Liabilities and Direct Investment in Reporting
Economy (Net).
5.2

CONCLUSION

The study identifies only one variable for Asset which is Net Asset. This implies that
investors from other country mainly invest less in the country (Asset) while two variables
for liabilities. These are Net Liabilities and Net Direct Investment in Reporting Economy.
This means that Nigeria citizens (Nigerians) are investing more in foreign countries
compared to foreign investment in their home country (Nigeria). Net Liabilities and Net
Direct Investment in Reporting Economy are greater than the Net Asset.

5.3 RECOMMENDATIONS
In view of the findings, the researcher recommended the following:
(1)

The transformation agenda should focus more on how to create conducive

environment for investors from other countries to invest in Nigeria. This will help to
increase the Net Asset and reduce Net Liabilities.

(2)

Government should always create an automated GDP Rebasing models, so that our
economists should not forget it when due for another Rebase due to political
instability and corruption.

(3)

The government at all levels should put structures to keep our youths busy and this
will help to reduce insecurity problem in the country, so that foreign investor will
come in to invest.

(4)

The energy sector should be improved, so as to create enabling environment for

foreign investors and other local investors in the country.

REFERENCE
Marlyn, I. & Kelvin B. (2013), Direct Investment Position for 2012 Country and Industry
Details; Bureau of Economic Analysis (BEA), Quarterly Survey.
Obida, G. W. & Abu, N. (2010), Determinant of Foreign Direct Investment in Nigeria; An
Empirical Analysis. Global Journal of Human Social Science Vol. 10, Issue I Ver. 10,
April.
Olusanya, S. O. (2013), Impact of Foreign Direct Investment Inflow on Economic Growth
in a Pre and Post Deregulated Nigeria Economy. A Granger Causality Test (1970
2010). European Scientific Journal, Sept. 2013 Edition Vol. 9, No. 25
Salami, A. O. & Oyewale, I. O. (2013), Impact of Foreign Direct Investment on
Employment Generation in Nigeria; International Journal of Economic Research and
Investment Vol. 4, No. 1, April.