THE EFFECT OF FOREIGN DIRECT INVESTMENT INFLOW, EXCHANGE RATE AND INFLATION RATE ON ECONOMIC GROWTH IN NIGERIA

ABSTRACT This study examined the effect of foreign direct investment inflow, exchange rate and inflation rate on economic growth in Nigeria from 1980-2023 Data employed for this study was elicited from World Bank Data Base-World Developmental Indicators of 2022 and Central Bank of Nigeria Statistical Bulletin of 2022. This study employed economic growth (GDP) which is the dependent variable where foreign direct investment (FDI), exchange rate (EXR), inflation (INF), and interest rate (INR) are independent variables. This study employed Auto Regressive Distributed Lag (ARDL) Model to analyze data; other diagnostic tests such as: stability test, Auto correlation test, Heteroskedasticity test and BreuschGodfrey Serial Correlation LM test were also carried out and they confirmed the validity and reliability of the model employed the long-run ARDL result revealed exchange rate has a positive effect on economic growth. In the short run, most of the variables are statistically significant; thus, justifying evidence of lag effect between foreign direct investment, exchange rate inflation rate, interest rate and economic growth. In addition to exchange rate and the effects of inflation on economic growth were equally investigated in the short run. The findings showed that inflation rate and interest rate negatively impacted on economic growth. This finding indicates that increase in interest rate and price level is detrimental to the growth of the Nigerian economy. From the findings of this study, the following policy recommendations are postulated; That the government in collaboration with the Central Bank and other policy making bodies in Nigeria make policies that will help the economy attain a table exchange rate regime. It is believed that this will not only attract really inward FDI but will also boost domestic production as it will help the domestic firms compete favorably with the multinationals. If the above is done, it will also help the Nigerian economy to attract FDI, if the bureaucratic bottlenecks experienced by foreign investors through the customs and port authorities are minimized.