Title:
AN INVESTIGATION OF THE NEXUS BETWEEN FOREIGN DIRECT INVESTMENT AND REAL EFFECTIVE EXCHANGE RATE IN NIGERIA

Authors:
Bank-Ola, Rebecca Folake

Abstract:
Fluctuations in the rate of exchange in the Nigerian economy and the eventual uncertainty therefrom has led to withdrawal of some foreign direct investment, deterioration and closure of local businesses. This necessitated the study to examine the foreign direct investment’s impact on real effective exchange rate in Nigeria from 1986 to 2018. The Auto-Regressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were employed using time series data. The result of the ECM term indicates that the economy will recover at a high speed of 72% after disequilibrium within a year, while the analysis shows that foreign direct investment has a positive effect on real effective exchange rate. Trade openness, money supply and Inflation on consumer prices also has a positive effect, whereas direct credit to private sector and interest rate has a negative effect on real effective exchange rate. The study concludes that a positive relationship exists between foreign direct investment and real effective exchange rate in Nigeria. Hence, the Nigerian government should implement policies geared towards ensuring the stability and sustainability of real effective exchange rate in order to thrive foreign direct investment in the country.

Keywords:
Foreign Direct Investment, Real Effective Exchange Rate, Inflation, Disequilibrium, Auto-Regressive Distributed Lag Model

DOI:
http://dx.doi.org/10.37500/IJESSR.2021.4408