Exchange Rate Volatility and Foreign Investment Growth in Nigeria

Abstract

This study empirically investigates exchange rate volatility and foreign investment growth in Nigeria for the period 1986 to 2021. Exchange rate volatility was generated using the EGARCH model; while the generalized method of moment (GMM) was employed for the main analysis of the study. The results from the analysis of data confirmed the existence of exchange rate volatility in Nigeria, and this volatility does not significantly affect foreign investment growth/inflows. Real GDP growth, has significant negative impact on FDI and FPI; per capita income and trade openness have significant positive effect on FDI; infrastructure and market liquidity have significant inverse effect on FDI inflows; market capitalization is positive and significantly related to FPI inflows. The study recommends that, monetary authority (CBN) should further develop sound exchange rate management such that deposit money banks in Nigeria should be mandated to regulate the vacillations in exchange rate disbursement and allocations of foreign currencies and the Naira.

Keywords: Exchange Rate Volatility, Foreign Investment Growth, Financial Openness, Econometric and Statistical Methods