The Cashless Policy and Foreign Direct Investment in Nigeria: A Vector Error Correction Model (VECM) Approach

Abstract

The study undertakes an econometric research to analyze the cashless policy and its effectiveness on attracting foreign direct investment in Nigeria using quarterly data of 2006 to 2012. The log linear vector error correction model (VECM) was adopted to examine how automated teller machine (ATM), interbank transfer (IBT) and Mobile money (MM) had impacted on foreign direct investment (FDI). Unit root test was carried out on each of the variables to determine their level of stationarity. They were however found stationary after first difference and then used for the regression analysis. From the various regression results, we find out that the cointegration test confirmed the existence of long run relationship among the variables, while the granger causality shows a bi-directional relationship where IBT and MM was said to granger cause FDI in Nigeria. In the VECM model result, all the explanatory variables are positive and significant meaning that they all contribute positively to the increase in FDI in the country. The study recommends that the use of ATM, IBT and MM should be much more encouraged in Nigeria, with proper awareness on its benefit. Also effective policy needs to be developed by the government through the CBN to ensure the effectiveness and efficiency of ATM, IBT and MM.