Climate change vulnerability and foreign direct investment attraction: The criticality of climate change readiness for Nigeria

The fundamental premise that the nature of the domestic investment climate significantly matters in the attractiveness of foreign direct investment (FDI) has been viewed as important for research engagement, which has spurred rising debates among stakeholders and policymakers. In view of this, the study looks at how FDI inflows can be affected by climate change vulnerability and readiness in Nigeria through the use of Autoregressive Distributed Lag (ARDL) approach and Pairwise Granger Causality Test. Empirical results confirm that FDI inflows are negatively affected by climate vulnerability index and a perceived poor level of climate readiness index (such as poorly designed climate interventions) insignificantly impacts the trajectory of FDI flows, suggesting that inadequate climate readiness could have a negligible effect on FDI attraction. Regarding the interaction effect, in the face of slow and inadequate responses to climate crisis with high vulnerability, negative impacts of climate change susceptibility on FDI inflows could be further escalated —when climate readiness is poor, the negative effects of vulnerability on FDI become even stronger. This implies that in the absence of macro-critical policies that could stimulate the quick action to climate shocks, the adverse influence of climate change vulnerability on inward FDI would be more pronounced. In addition, it is revealed that FDI inflows seem to be highly sensitive to the variability of climatic conditions, indicating that multinational enterprises (MNEs) do put much weight on a country's climate-induced risk profile. Thus, it is suggested that improving the governance frameworks to achieve a more optimal state of climate change readiness is central for adapting to climate change and ensuring climate risk mitigation.