Journal of Business & Economic Policy

ISSN 2375-0766 (Print), 2375-0774 (Online) DOI: 10.30845/jbep

Exchange Rate Volatility and Foreign Direct Investment: The Nigerian Experience
Adokwe Ekene Ignatius, Agu Anthony Ogbonna, Maduka Anne. C

Exchange rate volatility which implies uncertainty in the rate of exchange at any point in time has the potential to impact on Foreign Direct Investment (FDI). Nigeria with her multiple exchange rate system has the potential of inducing exchange rate volatility. This study investigated the effect of exchange rate volatility on foreign direct investment in Nigeria, adopting monthly time series data relating to exchange rate volatility, foreign direct investment, external reserves, domestic interest rate, RGDP growth rate and trade openness for the period of 1986-2016. The exchange rate volatility series was estimated using the generalized autoregressive conditional heteroscedasticity (GARCH) technique. After the conduct of preliminary unit root test on the series, the 2Stage Least Squares methods was employed to estimate the model of the study. The findings of the study indicated that exchange rate volatility has a negative but significant effect on Nigeria’s foreign direct investment. The study recommend the harmonization of Nigeria’s foreign exchange system and administration of single interest digit loan to increase the ease of doing businesses in the economy.

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