The study examines the effect of exchange rate stability on foreign direct investment (FDI) inflows in Nigeria using annual data from 1987-2024. The data were sourced from World Development Indicators (WDI). Exchange rate, Gross Domestic Product (GDP), and Inflation were used as the independent variables, while FDI was the dependent variable. Unit root test was conducted using Augmented Dickey Fuller (ADF) and Phillips Perron statistics, and the result indicated a mixed order of integration. Bound test result indicated that there is a significant long-run relationship between the variables under study. Autoregressive Distributive Lag Model (ARDL) was employed to examine both short run and long run relationships among the variables. The findings revealed that the exchange rate had a negative but statistically insignificant effect on FDI, GDP had a positive and statistically significant effect on FDI, and inflation had a positive and statistically insignificant effect on FDI. The error correction term, which is negative and statistically significant, indicates that 71% of short run disequilibrium is corrected annually. The study concludes that while exchange rate stability is important, GDP is more effective in attracting FDI into Nigeria. It recommends policies that promote sustainable economic growth, exchange rate stability, price control and structural reforms to improve the investment condition in Nigeria.
Okereke et al. (Tue,) studied this question.