Real Effective Exchange Volatility and Fdi Sustainability: Implications for the Nigerian Economy


The paper investigates the empirical evidence of Real Effective Exchange Rate Volatility and FDI inflow into Nigeria. The vital role of FDI in bridging the development gap and the impediment caused by the volatility in the Real Effective Exchange Rate have been attested to by various literature There has been no consensus by studies in this issue as regards whether Real Effective Exchange Rate volatility has a negative or positive effect on the FDI. In addition, the investigation of such relationship has been grossly ignored in the Nigerian literature The main objective is thus to empirically investigate the relationship between the volatility in the Real Effective Exchange Rate and the level of FDI in Nigeria. The study covered the period between 1981 and 2016. The Ordinary Least Squares technique was used in analyzing the data. Specifically, the ECM and the cointegration models were adopted. The results indicate that the one period lagged FDI has a significant and positive impact on the current FDI. The REER has an insignificant and positive impact on the FDI. The REERV has a significant and negative impact on the FDI. The result indicates further that the REERV has a negative and significant impact on the FDI. Openness of the economy o has a positive and significant impact on the REER The paper recommends a production based devaluation of the Nigerian REER.     

Keywords: Error Correction Mechanism, Foreign Direct Investment, Real Effective Exchange Rate, Real Effective Exchange Rate volatility, openness

Article Review Status: Published

Pages: 70-78 (Download PDF)

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