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Foreign Direct Investment and Exchange Rate Volatility in Nigeria

This study investigated the empirical evidence on the effect of exchange rate volatility on foreign direct investment (FDI) in Nigeria, using secondary time series data from1970 to 2004. In doing this, the study utilized the error correction model as well as OLS method of estimation. The results suggest, among others, that exchange rate volatility need not be a source of worry by foreign investors. Also, the study further reveals a significant positive relationship between real inward FDI and exchange rate. This implies that, depreciation of the Naira increases real inward FDI. Also, the results indicate that the structural adjustment programme (introduced in Nigeria in 1986) had a negative impact on real inward FDI, which could be due to the deregulation that was accompanied by exchange rate volatility. As such, a major challenge before the Central Bank of Nigeria therefore, is to attain a stable and realistic exchange rate that will boost domestic production, increase real inward FDI and maintain internal and external balance.

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Article provided by Euro-American Association of Economic Development in its journal International Journal of Applied Econometrics and Quantitative Studies .

Volume (Year): 9 (2009)
Issue (Month): 2 ()
Pages:

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Handle: RePEc:eaa:ijaeqs:v:9:y2009:i:1_13
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  1. Campa, Joe Manuel, 1993. "Entry by Foreign Firms in the United States under Exchange Rate Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 614-22, November.
  2. Linda S. Goldberg & Charles D. Kolstad, 1994. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," NBER Working Papers 4815, National Bureau of Economic Research, Inc.
  3. Nikolina Kosteletou & Panagiotis Liargovas, 2000. "Foreign Direct Investment and Real Exchange Rate Interlinkages," Open Economies Review, Springer, vol. 11(2), pages 135-148, April.
  4. Darby, Julia & Hughes Hallett, Andrew & Ireland, Jonathan & Piscitelli, Laura, 1998. "The Impact of Exchange Rate Uncertainty on the Level of Investment," CEPR Discussion Papers 1896, C.E.P.R. Discussion Papers.
  5. Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November.
  6. Blonigen, Bruce A, 1997. "Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment," American Economic Review, American Economic Association, vol. 87(3), pages 447-65, June.
  7. Nigel Pain & Desirée Van Welsum, 2003. "Untying The Gordian Knot: The Multiple Links Between Exchange Rates and Foreign Direct Investment," Journal of Common Market Studies, Wiley Blackwell, vol. 41(5), pages 823-846, December.
  8. n/a, 1998. "Job creation and destruction in the corporate sector: the relative importance of births, deaths and," NIESR Discussion Papers 208, National Institute of Economic and Social Research.
  9. Benassy-Quere, AgnEs & Fontagne, Lionel & LahrEche-Revil, Amina, 2001. "Exchange-Rate Strategies in the Competition for Attracting Foreign Direct Investment," Journal of the Japanese and International Economies, Elsevier, vol. 15(2), pages 178-198, June.
  10. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  11. Guisan, M.Carmen, 2001. "Causality and Cointegration between Consumption and GDP in 25 OECD countries: limitations of cointegration approach," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 1(1), pages 39-61.
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