Influence of Real Exchange Rate and Volatility on FDI Inflow in Nigeria

Abstract

The purpose of this research is to ascertain the effect of real exchange rate fluctuation and its volatility on inward flow of FDI with Nigeria as a focal country, between 1970 to 2014. The research applied GARCH (1,1) to ascertain the level of volatility and ARDL model was used to determine the relevant results-these techniques were adopted for their robustness in estimation. It could be revealed that the effects of exchange rate and exchange rate volatility are more of a short-run phenomenon; while devaluation would increase inflow of FDI, volatility makes foreign investors more sceptical with increasing uncertainty. Increasing uncertainty could deter inflow of FDI into the country. Having captured the effect of political regime in the model, the paper reveals that a democratic regime should be the mainstay since it attracts more foreign investment compared to the military regimes. Therefore, even though devaluation is good, it would be better under civil government regimes.

Effects of Bilateral Real Exchange Rate on Sino-Nigeria Trade: An ARDL Cointegration Approach

“…10, No. 7;2018 between scholars to that effect. Therefore, justifying these arguments using Nigeria-China situation in bilateral trade relation becomes impending necessity.…”

“…10, No. 7;2018 Also, from the export model, result shows that third country competitor's effect (Ϝ cjt ) has much negative effect on China's import from Nigeria in the long run. At least, a percentage depreciation of Japanese Yen will decrease China's import from Nigeria as focus will be shifted to buying from Japan since devaluation ensure lower prices compared to international market development.…”

“…10, No. 7;2018 affects US-Germany trade, reached conclusion that volatility in exchange rate is disadvantageous to transnational trade movements. Serial studies by Cushman (1983Cushman ( , 1986Cushman ( and 1988 which focused on the effect of exchange volatility on bilateral trade, revealed that there are negative effects.…”

“…10, No. 7;2018 Where X-Value of exports, M-Value of imports, Y= Real domestic GDP, Y*=Real GDP of trading partners, and ER exchange rate variables.…”

“…In this regard, the researchers will take Japan as the major competitor to China in Nigerian market and so they are. Also, democratic regime has been viewed to have created enabling business environment which does not only motivate inflow of FDI in Nigeria (Muhammad, Azu, & Oko 2018) but also could improve bilateral trade relations, hence will be taken into consideration in this paper. With export and import considered separately the research will apply ARDL approach to cointegration to determine the long-and short-runs effects.…”