The Impact of Exchange Rate Fluctuations on Foreign Direct Investment in Nigeria

Abstract

Abstract:This study seeks to find out the relationship between foreign exchange rate and foreign direct investment (FDI) and the impact of FDI on the gross domestic product (GDP) in Nigeria, this is important in view of the recent and past devaluation of Nigeria currency as well as the exchange rate changes over the years to be precised 26years coverage . This underscores the need to assess how foreign investors through FDI respond to changes in the exchange rate, and how this relationship affects GDP with a view to identifying gaps and provide policy recommendations and direction to the policy makers and the Nigeria government. To achieve this, data of FDI, exchange rate, and GDP were obtained from the Central Bank of Nigeria (CBN) website for the period under review and analyzed using regression and correlation analysis techniques. Findings from the analysis show that there is a strong positive relationship between FDI and exchange rate in Nigeria on one hand and there is a weak positive relationship between FDI and GDP on the other hand. The researcher also found that there was a significant inflow of FDI from 2005-2014 due to rise in exchange rate in the same period. The study concludes that exchange rate, FDI, and GDP are positively correlated. The study recommended that Government of Nigeria should fully liberalized exchange rate regime devoid of fixed multiple exchange rates so as to attract more FDI and contribute to GDP, this is because commercial viability of any FDI is based on exchange rate stability.

Effects of Exchange Rate on Foreign Direct Investment Inflow in Nigeria

“…Foreign direct investment (FDI) is simply the flow of capital from one country to another, in order to gain a lasting interest in an enterprise in the foreign country. It is an investment in the form of a controlling ownership in a business enterprise in one country by an entity based in another country [1]. There is an uncompromising economic and financial struggle between developed and developing countries to attract foreign companies to invest in their markets [2].…”

“…The form of a controlling ownership in a business enterprise in one country by an entity based in another country [1]. There is an uncompromising economic and financial struggle between developed and developing countries to attract foreign companies to invest in their markets [2].…”

“…Nigeria is one of the economies with great demand for goods and services and has attracted FDI over the years [1]. Fig.…”

Companies profitability under economic instability: evidence from the manufacturing industry in Russia

“…Economic development and inflows are also associated with exchange rates. In Nigeria (Zakari 2017) there was a strong positive relationship between FDI and exchange rate on the one hand, and a weak positive relationship between FDI and GDP on the other hand.…”

The Consequences of Exchange Rate Fluctuations on Nigeria’s Economic Performance: An Autoregressive Distributed Lag (ARDL) Approach

“…Concerns about the consequences of exchange rate fluctuations in both developed and developing economies like Nigeria have evolved in an astonishing manner owing to its impact on exports (Abdoh et al, 2016;Caselli et al, 2017;Fauceglia, 2020;Vieira and MacDonald, 2016;Vo and Zhang, 2019), employment growth (Bakhshi and Ebrahimi, 2016;Fang, 2020;Usman and Elsalih, 2018), trade (Asteriou et al, 2016;Jadoon and Guang, 2019;Rashid and Waqar, 2017;Senadza and Iheanachor & Ozegbe Diaba, 2017), inflation (Alagidede and Ibrahim, 2017;Bagheri and Gheisarinejad, 2016), investment (Avdjiev et al, 2019;Mostafapour et al, 2020;Zakari, 2017), and more general economic activity (Adewuyi and Akpokodje, 2013;Akinlo and Onatunji, 2020), and growth (Alagidede and Ibrahim, 2017;Habib et al, 2017;Isola et al, 2016;Vasani et al, 2019).…”