IMPACT OF MACROECONOMIC VOLATILITY ON FDI INFLOW IN NIGERIA

ABSTRACT

This research work investigates the impact of macroeconomic volatility on FDI inflow into Nigeria. We decomposed FDI into various sources and examine if macroeconomic volatility affects each source of FDI differently. Using the ordinary least squares method, we find that FDI from different source do not respond differently to macroeconomic volatility in Nigeria. This implies that investors from all parts of the world consider the same set of factors before they can invest. We find that total FDI inflow into Nigeria is negatively affected by volatility of GDP and this is statistically significant. Total FDI is positively and significantly related to volatility of exchange rate. Interest rate volatility has positive impact on total FDI inflow into Nigeria. Overall, we find that GDP matters and is the chief driver of foreign direct investment inflow into Nigeria suggesting that most of the FDI inflow into Nigeria is basically market-seeking type. The results show that interest rate has positive and significant impact on FDI and this is robust across various sources of FDI. One policy implication of our results is that policy measures that would ensure steady and stable GDP growth will be fundamental in ensuring huge inflow of foreign investment in Nigeria from all parts of the world.