The Impact of Exchange Rate Fluctuations on Foreign Direct Investment in Nigeria

Abstract

This study seeks to find out the relationship between foreign exchange rate and foreign direct investment (FDI) and the impact of FDI on the gross domestic product (GDP) in Nigeria, this is important in view of the recent and past devaluation of Nigeria currency as well as the exchange rate changes over the years to be precised 26years coverage (1990-2015). This underscores the need to assess how foreign investors through FDI respond to changes in the exchange rate, and how this relationship affects GDP with a view to identifying gaps and provide policy recommendations and direction to the policy makers and the Nigeria government. To achieve this, data of FDI, exchange rate, and GDP were obtained from the Central Bank of Nigeria (CBN) website for the period under review and analyzed using regression and correlation analysis techniques. Findings from the analysis show that there is a strong positive relationship between FDI and exchange rate in Nigeria on one hand and there is a weak positive relationship between FDI and GDP on the other hand. The researcher also found that there was a significant inflow of FDI from 2005-2014 due to rise in exchange rate in the same period. The study concludes that exchange rate, FDI, and GDP are positively correlated. The study recommended that Government of Nigeria should fully liberalized exchange rate regime devoid of fixed multiple exchange rates so as to attract more FDI and contribute to GDP, this is because commercial viability of any FDI is based on exchange rate stability.