IMPACT OF EXCHANGE RATE ON THE INFLOW OF FOREIGN DIRECT INVESTMENTS IN NIGERIA FROM 1986-2020

Abstract

This paper analyzed the impact of the exchange rate on the inflow of foreign direct investment in
Nigeria for the period from 1986 to 2020 making use of annual time series data sourced from the
database of the World Development Indicator (WDI) and Central Bank of Nigeria (CBN) 2021
Statistical Bulletin. The method employed for this investigation was the Autoregressive Distributed
Lag (ARDL) approach of estimation, the data analysis began with the finding out the unit root
properties of the variables. The Philips-Perron (PP) unit root test was employed and the test reveals
that the variables were either integrated of order I(0) or order I(1). This necessitated the use of the
Bounds testing approach in finding out the cointegration among the variables. Analysis using the
Bounds testing approach to co-integration revealed the existence of long-run relation among the
variables of the models. In determining the impact of the exchange rate on foreign direct investment
inflow in Nigeria, the study estimated an ARDL model and the finding revealed that the exchange
rate affects FDI in both the long and short run. The study recommends that government should make
the exchange rate stable to increase the inflow of foreign direct investment for desired economic
growth in the country.

Keywords: Autoregressive Distributed Lag, Economic growth, Exchange Rate, Foreign Direct Investment