Exchange rate volatility,foreign direct investment and manufacturing sector performance in Nigeria(1986-2014)
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Date
2016
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Publisher
Economics,Obafemi Awolowo University
Abstract
The study established the long run relationship that exists among exchange rate volatility, foreign direct investment (FDI) and the manufacturing sector performance from 1986 to 2014 and examined the impacts of exchange rate volatility on FDI in Nigeria. It also analysed the interaction of exchange rate volatility and FDI inflow. These were with a view to providing information on the effects of exchange rate volatility and FDI on the manufacturing sector performance in Nigeria.
Secondary data covering the period between 1986 and 2014 were employed in the analysis. Annual data on manufacturing value added, real interest rate, inflation rate, degree of trade openness, gross fixed capital formation, total natural resources were sourced from World Development Indicators (WDI). Also, annual data on manufacturing FDI and monthly data on exchange rate were obtained from Central Bank of Nigeria (CBN) statistical bulletin. Data collected were analysed using appropriate descriptive statistics and Autoregressive Distribution Lag (ARDL) regression technique.
The bound test results showed that there exists a long run relationship among exchange rate volatility, FDI inflow and manufacturing sector performance. It was observed that the F-statistic (10.553) is greater than the upper bound (3.61) which connotes the existence of a long run relationship among the variables. The results also showed that in the long run, exchange rate volatility (t=-55.413; p<0.05) had negative and significant effect on FDI inflow. In the short run, exchange rate volatility (t=209.117; p<0.05) had a significantly positive effect on manufacturing FDI inflow. The results of the interaction of exchange rate volatility and FDI inflow (t=3.348; p<0.05) showed a positive and significant effect on the manufacturing sector performance.
The study concluded that exchange rate volatility and manufacturing FDI inflow had negative impact on the performance of the manufacturing sector performance in the long run. Also, the effect of the interactions between exchange rate volatility and manufacturing FDI inflow is positive on the manufacturing sector performance in Nigeria between 1986 and 2014.
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Keywords
Exchange rate, Volatility, Foreign direct investment, Manufacturing sector
Citation
Dahunsi,O.J (2016). Exchange rate volatility,foreign direct investment and manufacturing sector performance in Nigeria(1986-2014) Obafemi Awolowo University