Exchange Rate Volatility, Inflation Uncertainty and Foreign Direct Investment in Nigeria

Abstract

This article examines the effect of exchange rate volatility and inflation uncertainty on foreign direct investment in Nigeria. The investigation covers the period between 1970 and 2005. Exchange rate volatility and inflation uncertainty were estimated using the GARCH model. Estimation results indicated that exchange rate volatility and inflation uncertainty exerted significant negative effect on foreign direct investment during the period. In addition, the results show that infrastructural development, appropriate size of the government sector and international competitiveness are crucial determinants of FDI inflow to the country. This enquiry supports the commitment of policymakers to exchange rate and macroeconomic stability as key to FDI boom in Nigeria.