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The Impact of G-3 Exchange Rate Volatility on Foreign Direct Investment in Nigeria

Abstract:

In the light of the importance of foreign direct investment (FDI) for the promotion of economic development, this study examines the impact of the three economic power (G-3) currencies volatility on FDI in Nigeria. The study built an ARCH based measure of nominal exchange rate volatility and found that exchange rate volatility as a result of depreciation of the currency of the host country, Nigeria, attracts FDI, while volatility as a result of appreciation of the host country’s currency discourages FDI. Our result suggests the need to avoid over-valuation of the exchange rate and to maintain stable and flexible exchange rate in order to attract FDI inflow to Nigeria.

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