Abstract

In the last decade, one of the critical challenges facing Nigerian economy is the lack of adequate security of life and properties. It has been established in the literature that the country lacksability to equip and maintain effective security forces that are formidable enough to defend her territorial integrity against internal and external aggressions.However, in the recent time, there has not been serious attempts to investigate the impact of this menace on FDI inflows in the country.In view of the above motivation, this study critically examines the impact of security spending on FDI inflows in the country utilizingCointegration, DOLS and Granger Causality Approach. The study made use of data from CBN Statistical Bulletin and UNCTAD investment report from 1994-2016. Consequently, the estimated results that emerged from this paper are as follows: the long-run effect confirms that both defence spending and inflation have a significant negative relationship with foreign direct investment in Nigeria. However, internal security spending has a significant positive relationship with FDI in the country. Furthermore, there is a bidirectional causality between defence spending and FDI in the country. Therefore, based on the findings that emerged in this study, it is important for this paper to recommend the following: the policy makers in Nigeria should pay a critical urgent attention to the defence of its border against external aggression by mobilizing adequate resources towards this sector. Similarly, the wonton corruption that has eaten the fabric of this sector should be addressed by the relevant antigraft agencies in the country. In addition, the Nigerian government should possess a political will in ensuring adequate internal security on a sustainable basis, this in turn will create a friendly investment climate for inflows of foreign capital in the country.