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Modelling the Effect of Stock Market Volatility and Exchange Rate Volatility on Foreign Direct Investment in Nigeria: A New Framework Approach

Author

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  • Jokosenumi Saidat Omolola

    (Federal University of Agriculture, Abeokuta PMB 2240 Department of Economics, Nigeria)

  • Adesete Ahmed Adefemi

    (Federal University of Agriculture, Abeokuta PMB 2240 Department of Economics, Nigeria)

Abstract

Nigeria is in the forefront of African Nations who depend fully on foreign goods and services for consumption through high level of importation and has been one of the top destination countries for Foreign Direct Investment. Empirical literatures find mixed evidence of the effect of foreign direct investment (FDI) on stock market volatility and exchange rate volatility. This necessitates this research to investigate this gap and conclude based on this study result. This study employs the panel ARDL estimation technique to investigate the long run and short run effects of stock market volatility and exchange rate volatility on FDI in Nigeria using a time-series data which ranges (1990-2016). The ARCH/GARCH estimation technique was used to estimate the exchange rate volatility and stock market volatility values in which GARCH (1, 1) was employed. The pairwise granger causality test was used to check for the direction of relationship between FDI and (stock market volatility, exchange rate volatility). The result of the FDI ARDL equation reveals that there is a negative significant relationship between foreign direct investment (FDI) and exchange rate volatility (EXCHV) both short run and long run in Nigeria, and a positive insignificant relationship between stock market volatility (STMV) and foreign direct investment (FDI) of Nigeria in the long run but a positive significant relationship between stock market volatility (STMV) and foreign direct investment (FDI) of Nigeria in the short run.

Suggested Citation

  • Jokosenumi Saidat Omolola & Adesete Ahmed Adefemi, 2018. "Modelling the Effect of Stock Market Volatility and Exchange Rate Volatility on Foreign Direct Investment in Nigeria: A New Framework Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(12), pages 1482-1505, December.
    • Handle: RePEc:asi:aeafrj:2018:p:1482-1505
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    References listed on IDEAS

    as
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    3. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
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    More about this item

    Keywords

    Stock market volatility; Exchange rate volatility; Nigeria exchange rate; Foreign direct investment; Nigeria foreign direct investment Economic growth; Krugman fireman hypothesis Keynesian aggregate demand theory; Theories of investment; Simple accelerato;

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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