THE EFFECTS OF EXCHANGE RATE VOLATILITY AND INFLATION UNCERTAINTY ON FOREIGN DIRECT INVESTMENT IN NIGERIA
THE EFFECTS OF EXCHANGE RATE VOLATILITY AND INFLATION UNCERTAINTY ON FOREIGN DIRECT INVESTMENT IN NIGERIA
Abstract
Oscillation in the monetary variables increasingly deters
developing countries in general and in Nigeria in particular. The arguments is whether or not
exchange rate volatility and inflation uncertainty deter or leads to foreign direct investment
inflows in both the short and long runs. The paper set out to investigate the effects of exchange
rate volatility and inflation uncertainty on foreign direct investment in Nigerian using GARCH
approach to examine the volatility in exchange rate anduncertainty in inflation quarterly series
1 to 2015Q4. The paper relies on the ARDL bounds testing approach to cointegration and unrestricted error correction mechanism, developed by Pesaran, Shin and
Smith (2001).Major findings of this study shows that both exchange rate volatility and inflation
uncertainty have negative effect on FDI inflow in both short run and the long run. The
estimated models performed well as the speed of adjustment is quite past for Nigeria. The paper
concludes that exchange rate volatility and inflation uncertainty deter FDI. The study therefore
recommends that government should provide sound exchange rate practices by strengthen the
naira value with a moderate inflation rate. Government should further re-emphasized the
overhauling of economic infrastructure t
country as well as strengthening the security of life and property.