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NEXUS OF EXCHANGE RATE VOLATILITY AND FOREIGN DIRECT INVESTMENT IN NIGERIA
The paper examined nature of relationship existing between exchange rate volatility and foreign direct investment (FDI) in Nigeria. It equally sheds light on direction of causal relationship between the two variables during the period 1970 -2018.The study employed annual time-series data on foreign direct investment; GDP growth rate; exchange rate; export and import for the analysis. The data were sourced from statistical bulletins published by Central bank of Nigeria and the World Development Indicators (WDI) published by the World Bank. Auto-regressive Distributed Lag (ARDL) method was employed for the estimation. The results from the estimation revealed an existence of negative relationship between exchange rate volatility and FDI in Nigeria. The results also showed that high degree of trade openness negatively influence level of foreign direct investment in Nigeria. Unidirectional causality was also found to exist between exchange rate volatility and foreign direct investment in the country as causality runs from volatility to FDI. The study recommended that stable exchange rate should be vigorously pursued through sound exchange rate management system in order to increase investors’ confidence encouraging foreign direct inflows in Nigeria.
Foreign Direct Investment (FDI); exchange rate volatility; economic growth; and Auto-regressive Distributed Lag (ARDL)