Effect Of Exchange Rate Volatility On Foreign Direct Investment In Nigeria

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.

Content

Author and article information

Journal

Title: ScienceOpen Preprints

Publisher: ScienceOpen

Publication date (Electronic preprint): 3 November 2022

Affiliations

[1 ] Department of Economics, Obafemi Awolowo University Ile-Ife, Nigeria

Author notes

[* ]Email: oladejibasit094@ 123456gmail.com .

Author information

Basit Oladeji https://orcid.org/0000-0002-0287-0208

Article

DOI: 10.14293/S2199-1006.1.SOR-.PPBL3HY.v1

SO-VID: 4be879f4-cab2-41cd-9eab-c8507d10ad65

License:

This work has been published open access under Creative Commons Attribution License CC BY 4.0 , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Conditions, terms of use and publishing policy can be found at www.scienceopen.com .

History

Date received : 3 November 2022

Data availability: The datasets generated during and/or analysed during the current study are available from the corresponding author on reasonable request.

ScienceOpen disciplines: Economics

Keywords: FDI,Foreign Direct Investment,Foreign Investment,Exchange Rate Volatility

References

Iqbal Chaudhry Naveed, Mehmood Asif, Saqib Mehmood Mian. Empirical relationship between foreign direct investment and economic growth. China Finance Review International. Vol. 3(1):26–41. 2013. Emerald. [Cross Ref]
Cheng Leonard K., Kwan Yum K.. What are the determinants of the location of foreign direct investment? The Chinese experience. Journal of International Economics. Vol. 51(2):379–400. 2000. Elsevier BV. [Cross Ref]
Brzozowski Michal. Exchange Rate Variability and Foreign Direct Investment – Consequences of EMU Enlargement. SSRN Electronic Journal. Elsevier BV. [Cross Ref]
Banerjee Anindya, Dolado Juan, Mestre Ricardo. Error-correction Mechanism Tests for Cointegration in a Single-equation Framework. Journal of Time Series Analysis. Vol. 19(3):267–283. 1998. Wiley. [Cross Ref]
Baek Jungho. Exchange rate effects on Korea–U.S. bilateral trade: A new look. Research in Economics. Vol. 68(3):214–221. 2014. Elsevier BV. [Cross Ref]
Akinlo A.Enisan. Foreign direct investment and growth in Nigeria. Journal of Policy Modeling. Vol. 26(5):627–639. 2004. Elsevier BV. [Cross Ref]

Comments

Comment on this article

[1] Iqbal Chaudhry Naveed, Mehmood Asif, Saqib Mehmood Mian. Empirical relationship between foreign direct investment and economic growth. China Finance Review International. Vol. 3(1):26–41. 2013. Emerald. [Cross Ref]

[2] Cheng Leonard K., Kwan Yum K.. What are the determinants of the location of foreign direct investment? The Chinese experience. Journal of International Economics. Vol. 51(2):379–400. 2000. Elsevier BV. [Cross Ref]

[3] Brzozowski Michal. Exchange Rate Variability and Foreign Direct Investment – Consequences of EMU Enlargement. SSRN Electronic Journal. Elsevier BV. [Cross Ref]

[4] Banerjee Anindya, Dolado Juan, Mestre Ricardo. Error-correction Mechanism Tests for Cointegration in a Single-equation Framework. Journal of Time Series Analysis. Vol. 19(3):267–283. 1998. Wiley. [Cross Ref]

[5] Baek Jungho. Exchange rate effects on Korea–U.S. bilateral trade: A new look. Research in Economics. Vol. 68(3):214–221. 2014. Elsevier BV. [Cross Ref]

[6] Akinlo A.Enisan. Foreign direct investment and growth in Nigeria. Journal of Policy Modeling. Vol. 26(5):627–639. 2004. Elsevier BV. [Cross Ref]