EXCHANGE RATE FLUCTUATIONS, FOREIGN DIRECT INVESTMENT AND FINANCIAL DEVELOPMENT IN NIGERIA

Abstract

This study examines the relationship among exchange rate fluctuations, foreign direct investment, and financial development in Nigeria over the period 1970 to 2020. The study utilizes the Autoregressive distribution lag estimation technique to examine the relationship among the variables of interest. The results of the study show that foreign direct investment has a positive relationship with the level of exchange rate fluctuations, however, trade openness and inflation have a negative effect on the flow of foreign direct investment into Nigeria. The study observed that the interactive effect of exchange rate fluctuations and foreign direct investment has a negative effect on the level of financial development in Nigeria. Therefore, this study recommends that there is a need for the Nigerian government to implement policies aimed at improving the interaction between the level of exchange rate and foreign direct investment which in turn would have a positive impact on the development of the financial sector.