Impact Of Foreign Direct Investment On Economic Growth In Nigeria: Role Of Exchange Rate Volatility

Abstract

This study investigates the effect of Foreign Direct Investment (FDI) on economic growth in Nigeria, focusing on the moderating role of exchange rate volatility. Using annual data from 1992 to 2022 obtained from the World Development Indicators and Central Bank of Nigeria Statistical Bulletin, the study employed the ARDL approach, with exchange rate volatility estimated using the GARCH model. The findings show that FDI positively and significantly contributes to economic growth in the long run, while exchange rate volatility negatively affects growth, particularly in the short run. However, the positive and significant interaction between FDI and exchange rate volatility indicates that exchange rate conditions influence the growth-enhancing effect of FDI. Granger causality reveals a unidirectional relationship from economic growth to FDI, while the stability tests confirm that the model remains structurally stable. The study concludes that achieving greater exchange rate stability, strengthening foreign exchange reserves, diversifying exports, and improving the investment environment are essential for maximizing the contribution of FDI to sustainable economic growth in Nigeria.