Exchange Rate Dynamics and Foreign Capital Inflows to Nigeria

This study empirically investigated exchange rate dynamics and capital inflows to Nigeria from the period of 1986-2018. The study employed secondary data that were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletins and the World Bank Development Statistics. Descriptive statistics test, Least Squares Regression test, Generalized Linear Model Estimation Test, Unrestricted Cointegration Rank Test, and Error Correction Model Test were carried out. The result of the least squares regression it was discovered that external debt ratio (EXDR),, foreign portfolio investment ratio (FPIR), and export ratio (EXPR)had a negative and significant influence on exchange rates (EXR), while foreign direct investment ratio (FDIR), and net foreign transfer ratio (NFTR)had a positive and insignificant influence on EXR, but import ratio (IMPR)had a positive and significant influence on EXR. From the results of the study, it was discovered that EXDR, EXPR, FDIR, and FPIR had a negative and insignificant influence on the exchange rate in Nigeria. While NFTR and IMPR had a positive and insignificant influence on the exchange rate in Nigeria. From the ECM test, it was uncovered that at lag one EXDR, EXPR, FDIR, and FPIR had a negative and significant influence on EXR while NFTR and IMPR had a positive and significant influence on EXR. Based on the results of the study, the following recommendations were made: it will be a veritable policy direction and action to ensure that every borrowing is properly and strictly channeled and employed for the critical purpose of the borrowing. Diversions, misappropriation, and under-utilization must not be tolerated. Efforts must be made to productively utilize external loans in order to add value to the economy. The government of Nigeria should reduce the over-dependency and magnitude of imports by encouraging local production of those cherished goods that can play out the advantage of the country.