IMPACT OF FOREIGN DIRECT INVESTMENT AND EXCHANGE RATE VOLATILITY ON NIGERIA’S ECONOMIC GROWTH

Abstract

Nigeria’s economic growth has remained inconsistent despite numerous policy interventions, largely due to persistent macroeconomic instability. This study investigates the impact of Foreign Direct Investment (FDI), Exchange Rate Volatility, and Inflation Rate on Nigeria’s economic growth over the period 2010-2024, using quarterly time-series data. The objective is to determine how these key macroeconomic variables jointly influence output performance and stability. Secondary data sourced from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS) were analyzed using the Ordinary Least Squares (OLS) estimation technique after preliminary descriptive and diagnostic tests confirmed model adequacy and reliability. The empirical results reveal that FDI exerts a positive and statistically significant effect on GDP growth (p < 0.01), implying that foreign capital inflows stimulate investment, technology transfer, and productivity. Conversely, exchange rate volatility and inflation both show negative and significant impacts on economic growth (p < 0.05), indicating that macroeconomic instability weakens investor confidence, erodes purchasing power, and constrains long-term output expansion. The model’s R² value of 0.791 suggests that approximately 79 percent of the variation in Nigeria’s economic growth is explained by the included variables. The study concludes that while FDI promotes economic performance, its gains are curtailed by exchange rate and price instability. It therefore recommends creating a more stable investment climate, ensuring exchange rate coherence through coordinated policy, and containing inflation via prudent fiscal and monetary strategies to achieve sustained and inclusive growth.