Impact of Macroeconomic Variables on Foreign Direct Investments in Nigeria

Abstract

This study examines the impact of macroeconomic variables on foreign direct investment in Nigeria from the period of 1985-2020. Autoregressive Distributed Lag (ARDL) and Granger causality tests were employed. The result from ARDL shows that foreign direct investments are majorly determined by the real gross domestic product, exchange rate, interest rate and degree of openness. The Granger causality test indicates evidence of unidirectional causation which flows from exchange rate, inflation rate and degree of openness to foreign direct investment while no evidence of causality was found among other variables. Based on this, the study recommends that policymakers should put in high esteem economic growth and development in the country and this should be corroborated by a consistent exchange rate to increase investors’ confidence through a healthy and secured exchange rate management. Interest rate fluctuation should be curtailed by the monetary policy. Keywords: Foreign Direct Investments, Exchange Rate, Inflation Rate, Degree of Openness DOI: 10.7176/JESD/13-8-03 Publication date: April 30 th 2022