ABSTRACT
The study seeks to empirically analyze the impact of exchange rate instability on foreign direct investment in Nigeria from 1981 -2014. The data for the research study was extracted from CBN statistically bulletin volume 25, 2014 edition. The methodology is ordinary least square were foreign direct investment was regressed on Exchange Rate, Real Gross Domestic Product and Openness of the economy. Some econometrics test were conducted such as the unit Root, Contegration and Vector Autoregressive Model. The unit root result shows that none of the variables were stationary at level, but at first differencing they all became stationary. The contegration result shows that there is no long run relationship among the variables. The vector autoregressive model shows that exchange rate had an impact on economic growth. It is on this note that the researcher recommends amongst others that: policy makers should continue on the part of floating exchange rate policy to enable our domestic currency assume its proper level among the committee of world currencies, for purpose of establishing stability in the exchange rate of the naira, to ensure effective economic planning and sustainable growth and development.
TABLE OF CONTENTS v
LIST OF TABLES viii
ABSTRACT ix
CHAPTER ONE 1
INTRODUCTION 1
1.1 Background of the Study 1
1.2 Statement of the Problem 6
1.3 Research Questions 9
1.4 Objectives of the Study 10
1.5 Hypotheses of the Study 10
1.6 Significance of the Study 11
1.7 Scope and Limitation of the Study 11
CHAPTER TWO 13
LITERATURE REVIEW 13
2.1 Theoretical Literature 13
2.1.1 The Optimal Currency Area (OCA) Theory 14
2.1.2 The Elasticity Theory of Trade and Exchange 17
2.1.3 The Two-Gap Theory 24
2.1.4 The Flow Theory of Capital Movement 26
2.1.5 Dunning Eclectic Theory 28
2.2 Empirical Literature 29
2.2.1 Exchange Rate Levels 37
2.2.2 The Behavioural Pattern of Foreign Direct Investment and Exchange Rate in Nigeria 42
2.2.3 Analysis of the Trends and Behavioural Pattern of the Naira Exchange Rate and Foreign Direct Investment in Nigeria 43
2.2.4 Trends under the Exchange Control Era 45
2.2.5 Trends under the Flexible Exchange Rate 46
2.2.6 Trends under the Deregulated, Fixed and Dual Exchange Rate Regimes 48
2.2.7 Exchange Rate Movements and Foreign Direct Investments 51
CHAPTER THREE 53
RESEARCH METHODOLOGY 53
3.1. Research Design 53
3.2 Model Specification 54
3.3 Estimation Procedure 55
3.3.1 Unit Root Test 55
3.3.2 Co-integration test 56
3.3.3 Error Correction Mechanisms (ECM) 58
3.4 Data Discussion 60
3.5 Data Sources 61
CHAPTER FOUR 63
PRESENTATION AND ANALYSIS OF RESULTS 63
4.1. Unit Root Test 63
4.2 Co-integration Test 64