Exchange Rate Volatility and its Impact on Foreign Direct Investment Inflows in Nigeria

This study empirically investigated the impact of exchange rate volatility on foreign direct investment (FDI) inflows in Nigeria for thirty-two years covering the period of 1990 to 2021. The Augmented Dickey Fuller unit root test was used to establish the stationarity properties of the data set. Exchange rate volatility (EXRVOL) was generated utilizing the EGARCH model whereas the fully modified least square (FMOLS) was used for the core evaluation of the investigation. Results arising from the empirical analysis revealed that exchange rate is extremely volatile in Nigeria; it was also found that exchange rate fluctuations exert significant positive effects on FDI inflows within the period of investigation. On the other hands, while inflation rate (INFR) exert significant positive effect on FDI inflows, real gross domestic product (RGDP) exert significant negative effect on FDI inflows in Nigeria. That of trade openness (OPN) exerts a weak positive effect on FDI inflows in Nigeria. The study recommends among others that, since FDI inflows into Nigeria are greatly impacted by exchange rate volatility, the CBN, Nigeria's monetary authority, should review current exchange rate policy and create a sound exchange rate management system. This would require Nigerian deposit money banks to use the naira and foreign currency allocations and disbursements to control exchange rate fluctuations. By so doing, it will continue to minimize excessive fluctuations of the naira against other main currencies in the world and in turn stabilize the naira, thereby attracting more FDI into the country.