Effect of Foreign Direct Investment on Economic Growth in Nigeria: Does Exchange Rate Matter?

Abstract

This study investigates the effect of foreign direct investment on economic growth in Nigeria for the period from 1986 to 2020; a particular attention is also given on the role of exchange rate in the relationship between foreign direct investment and economic growth using annual time series data sourced from the database of World Development Indicator (WDI) of the World Bank and Central Bank of Nigeria (CBN) 2021 Statistical Bulletin. Autoregressive Distributed Lag (ARDL) model was employed for the analysis. The study found that FDI has positive and significant effect on economic growth. Exchange rate also has a positive and significant effect on the economic growth. Findings also show that the regression is significant at 5% level of significance as F-statistic is less than 0.05. This entails that the growth effect of FDI is enhanced in the presence of a stable exchange rate. Based on the findings, the study suggests an improvement in the institutional quality so as to attract the further inflow of foreign direct investment in Nigeria. The study also suggests that government should make exchange rate stable so that more foreign investment can be attracted for desired economic growth and development in the country.