Effect Of Exchange Rate Volatility On Foreign Direct Investment In Nigeria

Abstract

For the period of 1986 to 2018, this study examined the relationship between foreign direct investment and the foreign exchange rate in Nigeria. Based on historical data, the movement of the FDI-exchange rate relationship in Nigeria was examined in order to identify key problems with the creation and implementation of policies to promote FDI inflows. The study made use of a number of quantitative analytical techniques, including regression analysis, Granger causality test, correlation matrix, and descriptive statistics, all within an ECM and cointegration framework. In order to draw meaningful conclusions, the results of the empirical study provide some crucial evidence.First, no causal relationship between foreign direct investment and exchange rate existed during the research period, according to the estimations of the causality test. Second, there is a sizable long-term link between the exchange rate and foreign direct investment. The aforementioned result implies that the link between foreign capital inflows and exchange rate in Nigeria from 1986 to 2018 is both a short-run and long-run phenomena and that the extent of the impact of capital inflows and currency rate in particular is quite high and had a strong depreciating effect on FDI. In light of these findings, it is recommended that suitable policies be developed to stabilize the currency rate in order to promote the inflows of foreign capital while maintaining prudent regulations.