The Impact of Foreign Direct Investment, Inflation, and Exchange Rate Fluctuations on Economic Growth in Nigeria

Kayode David Kolawole and Oluwagbenga Abayomi Seyingbo
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Kayode David Kolawole: College of Accounting Sciences, University of South Africa, Pretoria, South Africa
Oluwagbenga Abayomi Seyingbo: University of Winchester, Winchester, United Kingdom

Oblik i finansi, 2025, issue 3, 113-124

Abstract: With its rich natural resources and large domestic market, Nigeria is one of the largest economies in Africa, attracting foreign investment. However, inflation and the exchange rate determine the profitability of foreign investment and, therefore, affect its role in stimulating economic growth in the country. This study aims to assess the impact of foreign direct investment (FDI), inflation, and exchange rate fluctuations on economic growth in Nigeria. This study adopted the Solow Growth Theory and the Dependency Theory as a theoretical framework. The researchers used an ex-post facto design and gathered annual secondary data from the World Bank from 1990 to 2024. The analysis employed unit root tests, descriptive statistics, cointegration tests, and the Autoregressive Distributed Lag (ARDL) model to assess short- and long-run trends. The findings show that past GDP has a significant impact on present growth. This points to path dependence in Nigeria's economy. Inflation and changes in exchange rates had inconsistent and short-lived effects. Their varying positive and negative signs reflect economic instability. In the short run, FDI was not significant, meaning foreign capital inflows do not immediately lead to productivity gains. This is due to weak institutions, limited technology transfer, and the repatriation of profits. In the long run, exchange rates and inflation did not have a significant effect, while FDI played a weak but positive role in growth, with significance only at the 10% level. These results highlight that unstable short-term shocks are more influential than long-term growth drivers. Thus, coordinated policies are needed to stabilise inflation and exchange rates, strengthen institutions, and create a better investment environment for sustainable growth. Government institutions can use the results of this research to develop coordinated fiscal and monetary policies that improve the country's investment climate and facilitate the inflow of foreign investment.

Keywords: inflation; foreign direct investment; exchange rate; economic growth; Nigeria (search for similar items in EconPapers)
JEL-codes: G00 O40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:iaf:journl:y:2025:i:3:p:113-124

DOI: 10.33146/2518-1181-2025-3(109)-113-124

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