Investigating the Impact of Exchange Rate Volatility on Foreign Direct Investment in Nigeria

Abstract

This study examined the impact of exchange rate volatility on FDI in Nigeria from 1981 to 2016, employing ARDL. The study finds exchange rate volatility to have mixed effect on FDI: exchange rate volatility coefficient was negative in the short-run, but positive in the long-run, suggesting proficient adjustment to exchange rate gyration. Financial reform significantly spurs FDI, both in the level and dynamic model. Also, the significant long-run impact of real GDP on FDI affirming that output size matters in FDI equation. Availability of natural resources was positively significant only in the dynamic equation, but interest rate was significant and negative in both models. The study recommends the need to ensure credible policy for stabilizing exchange rate, maintaining of low interest rate, infrastructural development, and derived diversification of the economy and adoption of a well-structured financial reform strategy with the view to supplying optimal funds for investment and growth of the real economy.