The variables considered in the estimated model are
Foreign Direct Investment (dependent variable) and the independent variables;
Company Income Tax (CIT) and Value Added Tax (VAT). It covers the period of
years 1994-2010.
PRESENTATION OF RESULTS
This research work employed the use of multiple
regression model based on Ordinary Least Square (OLS) method.
Modeling
LOG(FDI) by OLS
LOG(FDI) = - 0.204 + 0.075 LOG(CIT) + 1.028 LOG(VAT)
T* = (-0.159) (1.961) (11.905)
S.E =
(1.288) (0.038) (0.086)
t0.025 =
2.145
F (2, 13) = 121.21
F0.05 = 3.74
R2
= 0.945401
DW = 1.06
ANALYSIS OF RESULTS
T-test: The calculated t-value for the regression coefficients of LOG(CIT)
and LOG(VAT) are 1.96 and 11.91 respectively. The tabulated t- value is 2.145.
Since the calculated t-value of LOG(CIT) is less than the tabulated t-value at
5% level of significance; we conclude that its regression coefficients is
statistically insignificant. However, the regression coefficient of LOG(VAT) is
statistically significant because its calculated t-value is greater than the
tabulated value.
Standard Error test: It is used to test for statistical reliability of
the coefficient estimates.
S(b1) = 0.04 S(b2) = 0.09
b11/2 =
0.04 b21/2
= 0.514
Since
S(b1) > b1/2 , we conclude that the
coefficient estimate of S(b1) is not statistically significant while
the coefficient estimate of S(b2) is statistically significant.
F-Test: The F-calculated
value is 121.21 while the F-tabulated
value is 3.74 at 5% level of significance. Since the F-calculated value is greater than the F-tabulated value, we
conclude that the regression plane is statistical significant. This means that
the joint influence of the explanatory variables (CIT and VAT) on the dependent
variable (FDI) is statistically significant.
Coefficient of Multiple Determination (R2) It is used to measure the proportion
of variations in the dependent variable which is accounted for or explained by
the explanatory variables. The computed coefficient of multiple determination
(R2 = 0.945401) shows that 94.54% of the
total variations in the dependent variable(FDI) is accounted for, by the
variation in the explanatory variables namely Company Income Tax (CIT) and
Value Added Tax (VAT) while 5.46% of the total variation in the dependent variable
is attributable to the influence of
other factors not included in the regression model.
Durbin Watson statistics: The computed DW is 1.06. At 5% level of significance
with two explanatory variables and 17 observations, the tabulated DW for dL and
du are 1.015 and 1.536 respectively. The value of DW lies between the lower
limit and upper limit. Therefore, there is inconclusive evidence regarding the
presence or absence of positive first order serial correlation.
TEST OF HYPOTHESIS
The
researcher wishes to evaluate the impact of taxation on foreign direct investment in Nigeria. With respect to this, the null and
alternative hypotheses are stated as follows;
Ho: Taxation does not have significant impact on foreign
direct investment in Nigeria.
H1: Taxation has significant impact on foreign direct
investment in Nigeria.
F-test is employed in testing the
hypothesis. This test will help to capture the joint influence of the
explanatory variables on the dependent variable.
Decision
Rule
If F-cal > F-tab, reject the null hypothesis and
conclude that the regression plane is statistically significant. Otherwise
accept the null hypothesis.
Using 5% level of significance at 2 and
14 degrees of freedom, the tabulated F- value is 3.74 while calculated F-value
is 121.21. Since the calculated F-value is greater than the tabulated F-value
at 5% level of significance; we reject the null hypothesis and conclude that
taxation has significant impact on foreign direct investment in Nigeria.
IMPLICATION OF THE STUDY
The
regression result above shows that taxation has significant impact on foreign
direct investment in Nigeria within the period under study. It is estimated
from the result that 1% increase in taxation (CIT) will lead to increase by
0.1% in FDI. If tax rate increases, foreign direct investment will be
encouraged. This seems to be true where the available foreign firms in the host
countries are taxed high and the burden of the tax is wholly shifted to the
consumers of the commodities produced by the foreigner companies in the host
countries. Hence, there will be positive effect in foreign firms’ output.
There is a
direct relationship between VAT and FDI. It implies that an increase in VAT
will bring about increase in FDI. Thus, it is estimated from the result that 1%
increase in Value Added Tax (VAT), on the average, will lead to increase by
1.03% in FDI. This case will be justified where foreigners with their
investment in the host economy are taxed high. The consumers may suffer from
the high VAT rate. This may eventually lead to inflation in the host
country.