IMPACT OF TAXATION AND FOREIGN DIRECT INVESTMENT ON ECONOMIC DEVELOPMENT IN NIGERIA

Abstract

Taxation is a vital tool that enables infrastructural development, which paves the way for FDI that enhances economic development. The objective of this study is to examine the impact of taxation and foreign direct investment on economic development in Nigeria while accounting for the country’s poverty rate. The World Bank Development Indicator provided the secondary data for this study, which covered the years 1991 to 2023. The unit root test illustrated that the unit root that could cause the wrong conclusion has been eliminated. The VAR and VECM illustrated both the short- and long-term links of economic development with taxation and FDI while adjusting for the poverty rate. The FMOLS indicates a long-run impact of taxation on economic growth, while the OLS regression establishes that while poverty reveals a negative influence, taxation and FDI have a positive impact on economic development .Thus, the Nigerian government should implement adequate fiscal policy measures to combat the high poverty rate that contributes to tax evasion, and the appropriate tax authority should sensitise the entire citizenry about the importance of paying taxes as well as implementing a new tax reform bill that will improve infrastructural growth, attract FDI, and enhance economic development