Effect of Exchange and Interest Rates on Foreign Direct Investment in Nigeria 2006-2018

Abstract

This study examined the Effect of Exchange and Interest Rates on Foreign Direct Investment in Nigeria 2006-2018. Secondary data was used for the study and it was obtained from the financial statement of the Central Bank of Nigeria for the period 2000-2018. The unit root property of the data was analyzed using the Augmented Dickey Fuller Test and the variables were all stationary at first difference. Also, Johansen Co-integration test statistics was used to test the cointegrating nature of the data while the longrun and the shortrun relationship between the variables of the study were examined using the error correction model. The data was tested for normality using the Jarque-Bera test statistics. The result of the study indicates that a positive relationship exist between Exchange Rate and Foreign Direct Investment (FDI). The relationship is statistically significant (as t_{cal =} 7.25891) is greater than t_tab = 2.101 df 17) and in line with a priori expectation. The longrun co-integrating equation shows that a negative relationship exit between Interest Rate (INT) and Foreign Direct Investment (FDI) and the result is not statistically significant (as t_{cal =} -12.5639 is greater than t_tab = 2.101 @ df 17). Inflation (INF) was negatively related to Foreign Direct Investment (FDI) in the long-run. A unit increase in Inflation (INF) will lead to a corresponding increase in Foreign Direct Investment by GDP by 23.37%. This relationship is statistically significant (p<0.05) (as t_{cal =} -12.5639) is less than t_tab = 2.101@ df 17) and in line with our a priori expectation. It was recommended among others that board composition effect on total voluntary disclosure can be increased when appointment is made sometimes of an outside director who is an official of a financial firm as it has been found to increase firm share value. It was concluded that FDI is an important avenue for investment in agricultural, manufacturing and transfer of technology to an economy. It was recommended among others that the government should seek to stabilize exchange rates, through adoption of sound fiscal and monetary policies.