Modelling the Effects of Foreign Trade and Foreign Direct Investment on Capital Formation in Nigeria

Using a consistent estimating approach on data produces reliable empirical conclusions that private and public policymakers can trust. The impacts of international trade and foreign direct investment on capital creation in Nigeria were investigated in this study. The study's goals were to look at the impacts of total exports, total imports, and foreign direct investment on capital formation throughout the time period under consideration. The Central Bank of Nigeria Statistical Bulletin provided yearly time series data for the study, which covered the years 1980 through 2020. Using Eviews 12.0, the data was submitted to statistical analysis (OLS and robust least squares). The OLS post-estimation result revealed that the OLS assumption was violated. Leverage and influence plots were used to confirm the presence of outliers. To circumvent the shortcomings of the OLS regression, the study used robust least square regression. The results showed that the robust least square regression was superior to the OLS result, but among the Bi-square M-estimation, Huber M-estimation, and MM-estimation classes of robust regression, the MM-estimation was the best model with the least information criteria (Akaike info criterion = 59.66).

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