Title: Exchange rate volatility and sectoral analysis of foreign direct investment inflows in Nigeria (1970-2009)

Authors: Lukman O. Oyelami; Dauda O. Yinusa

Addresses: Wesley University of Science and Technology, Ondo, P.M.B 507, Ondo State, Nigeria ' Department of Economics, Obafemiawolowo University, Ile Ife, Osun State, Nigeria

Abstract: This paper investigates the effect of exchange rate volatility on oil and non-oil FDI inflows in Nigeria using vector error correction model (VECM) for the period 1970-2009. Previous theoretical and empirical studies on this issue produced conflicting results. The empirical results from short run dynamics show that bi-directional causal relationship exists between exchange rate volatility and non-oil FDI and no causal relationship exists between exchange rate volatility and oil FDI. But the results from forecast error variance decomposition (FEVD) indicate that there is no significant differential effect of exchange rate volatility on oil and non-oil FDI in Nigeria. This might suggests that there are other variables that drive oil FDI inflows apart from macroeconomic condition in Nigeria.

Keywords: exchange rate volatility; sectoral analysis; foreign direct investment; FDI inflows; autoregression; decomposition; causality; Nigeria; exchange rates; vector error correction model; VECM; oil FDI; non-oil FDI.

DOI: 10.1504/IJEBR.2014.064670

International Journal of Economics and Business Research, 2014 Vol.8 No.3, pp.296 - 308

Received: 24 Jul 2013
Accepted: 04 Oct 2013
Published online: 13 Sep 2014 *

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