This study examines the impact of exchange rate volatility on foreign direct investment (FDI) in Nigeria over the period 1980–2023. Unlike much of the existing literature that emphasizes exchange rate levels, this study focuses on volatility, proxied by the rolling standard deviation of exchange rate returns. A multivariate time-series framework is employed, incorporating unit root tests, Johansen cointegration, a vector error correction model (VECM), and Granger causality analysis to capture both long-run and short-run dynamics. The results indicate that exchange rate volatility has no statistically significant effect on FDI inflows. In contrast, inflation exerts a significant negative effect, while post-1986 structural reforms have a positive and significant impact on FDI. These findings suggest that macroeconomic stability and policy credibility play a more decisive role in attracting foreign investment than exchange rate uncertainty. The study contributes to the literature by providing evidence that challenges the conventional emphasis on exchange rate volatility as a primary determinant of FDI in developing economies.
Maduka et al. (2026) studied this question.