REAL EXCHANGE RATE INSTABILITY AND FOREIGN PRIVATE INVESTMENT IN NIGERIA: A CAUSALITY ANALYSIS (1986 - 2008)

This study examines the real exchange rate instability and foreign private investment in Nigeria. The economy of Nigeria is faced with fluctuations in real growth rates, price inflation, investment per capita, government revenue per capita and real exchange rate. Therefore, this study adopted time series econometrics analysis and descriptive statistics to ascertain the impact of exchange rate on increase/decrease of foreign direct investment in Nigeria and to determine the causal relationship between exchange rate volatility and private investment spending. The empirical analysis that was carried out to achieve the objectives mentioned above, include the econometric tests such as unit root, co-integration, and Error correction model in which CFPI was regressed on real exchange rate, inflation rate, interest rate and real GDP-using annual series data for the period 1986-2008, and the data was mainly from CBN statistical bulletin. The result of our analysis shows that test statistics are greater than the critical values. The study also found that- long-run relationship exists between the CFPI and the explanatory variables; EXR, INF, INT and GDP. Based on the findings above, the study recommends that Government should adopt other macroeconomic variables which will encourage foreign investors to come in. The study equally recommends that Efforts should be geared by government to reduce exchange rate distortions or misalignment, increase export of locally manufactured goods and raw materials in a bid to raise value of the local currency.