FOREIGN DIRECT INVESTMENT AND FOREIGN EXCHANGE RATE FLUCTUATIONS IN NIGERIA: 1981-2018
Authors:
Okonkwo, Ikeotuonye Victor & Ukoh, Josephine Ekperechukwu
Abstract:
This study examined the relationship between Foreign exchange rate fluctuations and foreign direct investment (FDI) in Nigeria from 1981 to 2018. This study was motivated by conflicting results regarding how foreign exchange rate changes influenced foreign direct investment in varied economies especially in Nigeria, and to answer the question of whether Foreign Exchange rate fluctuations adversely retarded the flow of Foreign Direct Investment in Nigeria or otherwise. The study adopted an ex-post facto research design using annual time series data from the Central Bank of Nigeria (CBN) statistical bulletin. The model was estimated using the Vector Error Correction (VEC) model. The result of the analysis revealed that foreign direct investment has positive but no significant relationship with Foreign exchange rate fluctuations; and there was no granger causality existing between foreign exchange rate and foreign direct investment in Nigeria. The paper submits that foreign direct investment inflow could be attracted if stable foreign exchange regime is sustained and ease of doing business in Nigeria is satisfactory. The paper recommended among others that the Central Bank of Nigeria should sustain the foreign exchange rate policies especially by financing commercial farming and agro-allied businesses and encouraging the standardization of products for exports; available foreign currency should be allocated mainly to export-oriented businesses; fully standardized Free trade zones and industrial layout should be marked out across the nations and private sectors should be encouraged to power the zones and layouts; and all levels of governments say the local, state and federal should work towards entrenching true federalism.