Investigating the Impact of FDI on Fiscal Policy Reforms in Nigeria
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Background of the Study
Fiscal policy reforms are critical to achieving macroeconomic stability, sustainable growth, and equitable development. In Nigeria, efforts to revamp fiscal policy have increasingly incorporated strategies to attract Foreign Direct Investment (FDI). FDI not only injects capital into the economy but also brings with it best practices in financial management and governance, potentially prompting reforms in tax administration, public spending, and revenue mobilization (Ibrahim, 2023). Theoretically, the presence of FDI can serve as an external benchmark, encouraging governments to enhance fiscal discipline and adopt transparent policies to attract further investment (Afolabi, 2024).
Recent reforms in Nigeria have focused on expanding the tax base, reducing fiscal deficits, and improving public financial management. However, the extent to which FDI influences these reforms remains a subject of debate. Some studies indicate that FDI creates pressure for fiscal modernization, while others suggest that internal political and institutional factors play a more dominant role (Chukwu, 2025). Given the mixed evidence, there is a need to systematically examine the relationship between FDI and fiscal policy reforms in Nigeria. By analyzing fiscal data, reviewing policy documents, and conducting interviews with policymakers, this study seeks to clarify the extent to which FDI catalyzes fiscal reform and to identify the conditions under which its impact is most pronounced.
Statement of the Problem
Despite ongoing fiscal policy reforms in Nigeria, the desired improvements in public financial management and revenue mobilization have been inconsistent. Although FDI is expected to create incentives for transparency and fiscal discipline, the anticipated reforms have not always materialized. This discrepancy raises the problem of whether FDI actually influences fiscal policy reforms or if other factors, such as political instability and institutional weaknesses, overshadow its potential impact (Ibrahim, 2023). Furthermore, while some sectors have benefited from improved fiscal practices due to FDI, the overall reform process remains fragmented and uneven (Afolabi, 2024).
The core issue is to assess the actual influence of FDI on the pace and depth of fiscal policy reforms in Nigeria. Determining this relationship is critical for policymakers who aim to design strategies that leverage FDI to enhance fiscal stability. This study will explore the channels through which FDI interacts with fiscal policies, analyze the mediating factors, and provide evidence on whether FDI serves as a catalyst for broader fiscal reforms. By addressing these questions, the research will contribute to a better understanding of the dynamics of fiscal reform in Nigeria and offer recommendations for aligning FDI attraction with improved fiscal governance (Chukwu, 2025).
Objectives of the Study
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To investigate the impact of FDI on fiscal policy reforms in Nigeria.
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To identify the mediating factors that influence this relationship.
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To recommend strategies that enhance the positive influence of FDI on fiscal reform.
Research Questions
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How does FDI affect fiscal policy reforms in Nigeria?
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What factors mediate the relationship between FDI and fiscal reform?
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What policy measures can optimize the role of FDI in promoting fiscal discipline?
Research Hypotheses
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Higher FDI inflows are associated with more comprehensive fiscal policy reforms.
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Institutional capacity moderates the effect of FDI on fiscal reform outcomes.
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Targeted policy measures can enhance the positive impact of FDI on fiscal governance.
Scope and Limitations of the Study
The study focuses on Nigeria’s fiscal policies and FDI data from 2020 to 2024. Limitations include the complexity of isolating FDI’s effect from political and institutional factors.
Definitions of Terms
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Fiscal Policy Reforms: Changes in government policies related to taxation, spending, and public financial management.
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FDI: Investments made by foreign companies in the domestic economy.
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Institutional Capacity: The ability of government institutions to implement and enforce policies effectively.
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