EFFECT OF EXCHANGE RATE AND INTEREST RATE ON FDI AND ITS RELATIONSHIP WITH ECONOMIC GROWTH IN NIGERIA

J. O. Mokuolu

Abstract


This research work focuses on examining the effect of exchange rate and interest rate on FDI and its relationship with economic growth of a developing economy focusing on Nigeria as a case study. An attempt is made to postulate a model based on the assumption that exchange rate and interest rate affect the inflow of FDI and in turn the growth of Nigerian economy. A simple econometric modeling patterned after the Autoregressive Distributed Lag model construct (ARDL) approach was applied to time series annual Nigerian data for a period covering forty eight years. The result revealed that there exist a strong positive relationship between FDI flows and economic growth represented by the GDP. The macro economic variables used in the study showed expected pattern as predicted in literature. The interest rate with negative sign as a priori expected implies that in Nigeria FDIs occurs irrespective of whether or not the interest rate is moving as expected. The result of the exchange rate condition of the country a priori postulated to be positive was confirmed to comply with expectation. The conclusion of the study is that irrespective of how we view FDI, it is still germane to the economic development of a developing country and on the basis of the findings it is recommended that a positive step should be taken.

 

JEL: F31, O24, E22, F21

 

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foreign direct investment, interest rate, exchange rate, gross domestic product

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References


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