Decomposition of the Impact of Exchange Rate Volatility on Foreign Investment

Filed in Economics Project Topic by on October 19, 2020

Decomposition of the Impact of Exchange Rate Volatility on Foreign Investment

ABSTRACT

The study examines the effect of exchange rate volatility on foreign investment in Nigeria for a period of 35 years (1981 to 2015).

The data gathered for this study is a secondary time series data and a linear model was estimated using the OLS estimation technique.

The study revealed that exchange rate volatility had a positive and significant effect on foreign direct investment in Nigeria.

Based on the finding of this study, it is recommended that there is need to minimize exchange rate volatility and to keep exchange rates stable.

INTRODUCTION

Given the central role of exchange rate in an economy generally, and its importance to international trade and investment in particular, the national government has increasingly felt the impact of this volatility on their own policies towards the achievement of macroeconomic objectives (Chukwudi and Madueme, 2010).

It comes with no surprise why there has been an increasing research into the behavioural pattern of exchange in most economy of the world.

In many emerging economies, foreign capital plays an important role in infrastructure development, technological advancement and productivity enhancement (Ullah, Haider and Azim, 2012).

Exchange rate volatility refers to the erratic fluctuation in exchange rate, occurring during periods of domestic currency appreciation or depreciation.

Exchange volatility has acquired a special interest in the research works on international trade and investment.

Exchange rate changes may lead to a major decline in future output if they are unpredictable and erratic. The exchange rate is therefore an important relative price as it has influence on the external competitiveness of the domestic economy.

REFERENCE

Adaramola, A. O. andObisesan, O. G. (2015). Impact of foreign direct investment on Nigerian capital market development. International Journal of Academic Research in Accounting, Finance and Management Science, 5 (1), 103-108

Adefoso, H. A. &Agoola, A. A. (2012). Determinants of foreign direct investment inflow in Nigeria: an empirical investigation. International Business Management, 6 (1), 83-89.

Adelowokan O. A., Adesoye A. B. and Balogun O. D. (2015). Exchange Rate Volatility on Investment and Growth in Nigeria, an Empirical Analysis. Global Journal of Management and Business Research: B Economics and Commerce, 15 (10), 21-30.

Adewuyi, A. O. (2005). Impact of Macroeconomic Policy Reforms on Wage and Employment: Evidence from Nigeria’s Manufacturing Sector. African Journal of Economic Policy, 12(2), 1–26.

Adewuyi, A. (2003). Can Nigeria Benefit from Globalization. In Constraint, Opportunities and Challenges Paper presented at 44thAnnual Conference of Nigerian Economic Society (NES) Ibadan.

Akeju K. (2014). Real Exchange Rates, Terms of Trade and Economic Growth in Nigeria (1980- 2012).Journal of Economics Theory, 8(2), 19-23.

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