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Influence of Real Exchange Rate and Volatility on FDI Inflow in Nigeria

Author

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  • Saidu D. Muhammad
  • Nnanna P. Azu
  • Ngozi F. Oko

Abstract

The purpose of this research is to ascertain the effect of real exchange rate fluctuation and its volatility on inward flow of FDI with Nigeria as a focal country, between 1970 to 2014. The research applied GARCH (1,1) to ascertain the level of volatility and ARDL model was used to determine the relevant results-these techniques were adopted for their robustness in estimation. It could be revealed that the effects of exchange rate and exchange rate volatility are more of a short-run phenomenon; while devaluation would increase inflow of FDI, volatility makes foreign investors more sceptical with increasing uncertainty. Increasing uncertainty could deter inflow of FDI into the country. Having captured the effect of political regime in the model, the paper reveals that a democratic regime should be the mainstay since it attracts more foreign investment compared to the military regimes. Therefore, even though devaluation is good, it would be better under civil government regimes.

Suggested Citation

  • Saidu D. Muhammad & Nnanna P. Azu & Ngozi F. Oko, 2018. "Influence of Real Exchange Rate and Volatility on FDI Inflow in Nigeria," International Business Research, Canadian Center of Science and Education, vol. 11(6), pages 73-82, June.
    • Handle: RePEc:ibn:ibrjnl:v:11:y:2018:i:6:p:73-82
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    References listed on IDEAS

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    Cited by:

    1. Julio Bicudo & Nnanna Azu, 2018. "Effects of Bilateral Real Exchange Rate on Sino-Nigeria Trade: An ARDL Cointegration Approach," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(7), pages 125-125, July.
    2. Sakli Hniya & Ahlem Boubker & Fatma Mrad & Sawssen Nafti, 2021. "The Impact of Real Exchange Rate Volatility on Foreign Direct Investment Inflows in Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 11(5), pages 52-67.

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    More about this item

    Keywords

    FDI; Real exchange rate; volatility; GARCH; political regime;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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