SavedAdd your journal

Journals / Journal of Economics Finance and Accounting / 2026 / Volume: 12 Issue: 1

EXCHANGE RATE VOLATILITY, STOCK MARKET DYNAMICS AND FOREIGN DIRECT INVESTMENT IN NIGERIA (2002–2023)

Adedayo Adebisi(Obafemi Awolowo University)0009-0004-6496-3276
Olusegun Odesola(Obafemi Awolowo University)0000-0003-4017-1042
Kehinde Aromona(Obafemi Awolowo University)0009-0003-3301-7968
Bisola Oyenekan(Obafemi Awolowo University)0009-0005-7082-8756
Pages
—
Publication Date
2025-07-30
🏛️Bibliographic metadata and full text access for this article are provided via DergiPark.
DergiPark Record ↗
✨

AI Summary & Key Takeaways

AI Insight
⚡ TL;DR(Too Long; Didn't Read)

The long-run negative impact of exchange rate volatility on FDI supports the need for policy measures to ensure exchange rate stability for a more conducive investment climate in Nigeria.

📌 3 Key Takeaways

🎯
Objective & Hypothesis:Purpose - The study tests the interactive and causal relationship among exchange rate volatility (ERV), foreign direct investment (FDI), and stock market performance (SMP) in Nigeria from 2003–2022.
📊
Key Findings & Data:Exchange rates have a positive and significant effect on long-run FDI, but the dynamics of short-run exchange rate movements and stock market performance are not significant.
💡
Conclusion & Impact:The long-run negative impact of exchange rate volatility on FDI supports the need for policy measures to ensure exchange rate stability for a more conducive investment climate in Nigeria.
🔬Design:Modeling & Simulation
📍Scope:2003–2022 Verileri
⚙️Variables:Exchange rate volatility · stock market performance · foreign direct investment

Abstract

Purpose - The study tests the interactive and causal relationship among exchange rate volatility (ERV), foreign direct investment (FDI), and stock market performance (SMP) in Nigeria from 2003–2022. Specifically, it investigates the long-run effect of ERV on SMP as well as the interactive effect of ERV and SMP on FDI. Methodology - The research follows an explanatory time series design and relies on secondary data gathered from the World Bank database. Econometric techniques, including the Autoregressive Distributed Lag (ARDL) model, Granger causality tests, and multiple regression analysis, are employed to examine both short- and long-run relationships among the variables. Results - The long-run ARDL specification and bounds test reveal the presence of a large inverse relationship between lagged and current FDI, which indicates an adjustment process towards equilibrium. Exchange rates have a positive and significant effect on long-run FDI, but the dynamics of short-run exchange rate movements and stock market performance are not significant. More volatility of exchange rates is also associated with low FDI, which reflects the adverse effect of exchange rate uncertainty on foreign investment. Conclusion - The evidence supports the supreme role played by exchange rate dynamics in determining FDI inflows. The long-run negative impact of exchange rate volatility on FDI supports the need for policy measures to ensure exchange rate stability for a more conducive investment climate in Nigeria.

🔖

Cite This Article

Adebisi, A., Odesola, O., Aromona, K., Oyenekan, B. (2025). EXCHANGE RATE VOLATILITY, STOCK MARKET DYNAMICS AND FOREIGN DIRECT INVESTMENT IN NIGERIA (2002–2023). Journal of Economics Finance and Accounting, Volume: 12 Issue: 1. https://doi.org/10.17261/Pressacademia.2025.1981

📄 Full Text PDF Viewer

📄

PDF görüntüleyici hazırlanıyor...

References (61)

  1. Abdullahi, K. (2023). How exchange rate and stock market volatilities affect foreign direct investment in Nigeria: A non-linear approach. Journal of Economics and Allied Research, 8(4), 253-269.
  2. Afxentiou, P. C., & Serletis, A. (2000). Exchange rate volatility and foreign direct investment in developing countries. Journal of International Money and Finance, 19(5), 769-781.
  3. Akerlof, G. A. (1970). The market for lemons: Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488-500.
  4. Akinlo, A. E., & Onatunji, A. O. (2021). Exchange rate volatility and foreign direct investment in selected ECOWAS countries. Journal of Economic Studies, 48(2), 349-365.
  5. Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and Economic Growth: The Role of Local Financial Markets. Journal of International Economics, 64(1), 89–112.
  6. Asmah, E. E., & Andoh, F. K. (2013). Exchange Rate Volatility and Foreign Direct Investment in Sub-Saharan Africa. Journal for the Advancement of Developing Economies, 2(1), 1-14.
  7. Bose, S., Saha, A., Khan, H. Z., & Islam, S. (2017). Non-financial disclosure and market-based firm performance: The initiation of financial inclusion. Journal of Contemporary Accounting & Economics, 13(3), 263–281. https://doi.org/10.1016/j.jcae.2017.09.006
  8. Bilawal, M., Ibrahim, M., Abbas, A., Shuaib, M., Ahmed, M., Hussain, I., & Fatima, T. (2014). Impact of exchange rate on foreign direct investment in Pakistan. Advances in Economics and Business, 2(6), 223-231.
  9. Blonigen, B. A. (2005). A Review of the Empirical Literature on FDI Determinants. Atlantic Economic Journal, 33(4), 383-403.
  10. Branson, W. H., Halttunen, H., & Masson, P. (1977). Exchange rates in the short run: The dollar-deutschemark rate. European Economic Review, 10(3), 303–324. https://doi.org/10.1016/S0014-2921(77)80016-0
  11. Buch, C. M. (2016). Exchange rate volatility and FDI: Evidence from emerging markets. International Economics and Economic Policy, 13(1), 1-22.
  12. Campa, J. M., & Goldberg, L. S. (1999). Investment, Pass-Through, and Exchange Rates: A Cross-Country Comparison. International Economic Review, 40(2), 287–314.
  13. Cushman, D. O. (1985). Real Exchange Rate Risk, Expectations, and the Level of Direct Investment. The Review of Economics and Statistics, 67(2), 297–308.
  14. Dewenter, K. L. (1995). Do Exchange Rate Changes Drive Foreign Direct Investment? The Journal of Business, 68(3), 405–433. http://www.jstor.org/stable/2353334
  15. Dunning, J. H. (1980). Toward an Eclectic Theory of International Production: Some Empirical Tests. Journal of International Business Studies, 11(1), 9–31.
  16. Engle, R. F., & Granger, C. W. J. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55(2), 251–276.
  17. Fapetu, O., Adeyeye, P. O., Seyingbo, O. A., & Owoeye, S. D. (2017). Exchange rate volatility and stock market performance in Nigeria. Nigerian Journal of Management Sciences, 6(1), 308–317.
  18. Fiorillo, P., Meles, A., Pellegrino, L. R., & Verdoliva, V. (2024). Geopolitical risk and stock price crash risk: The mitigating role of ESG performance. International Review of Financial Analysis, 91, 102958. https://doi.org/10.1016/j.irfa.2023.102958
  19. Frankel, J. (1983). Monetary and portfolio-balance models of exchange rate determination. In Economic interdependence and flexible exchange rates (pp. 84–115). MIT Press.
  20. Froot, K. A., & Stein, J. C. (1991). Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach. The Quarterly Journal of Economics, 106(4), 1191–1217. https://doi.org/10.2307/2937961
  21. Goldberg, L., & Charles, K. (2005). Foreign direct investment, exchange rate variability, and demand uncertainty. International Economic Review, 36(4), 855–873. https://doi.org/10.2307/2527380
  22. Gorg, H., & Greenaway, D. (2004). Much ado about nothing? Do domestic firms really benefit from foreign direct investment? World Bank Research Observer, 19(2), 171-197.
  23. Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics (5th ed.). McGraw-Hill.
  24. Hanusch, M., Nguyen, H., & Algu, Y. (2018). Exchange rate volatility and FDI inflows: Evidence from cross-country panel data (MTI Discussion Paper No. 2). The World Bank.
  25. Havi, E. D. K. (2021). The impact of exchange rate volatility on foreign direct investment inflows in Ghana. African Journal of Economic Review, 9(4), 183. https://digitalcommons.unl.edu/jade/21
  26. Huchet-Bourdon, M., & Korinek, J. (2011). To what extent do exchange rates and their volatility affect trade? OECD Trade Policy Papers, No. 119. OECD Publishing. https://doi.org/10.1787/5kg3slm7b8hg-en
  27. Ignatius, A. E., Ogbonna, A. A., & Maduka, A. C. (2019). Exchange rate volatility and foreign direct investment: The Nigerian experience. Journal of Business & Economic Policy, 6(4), 78-89. https://doi.org/10.30845/jbep.v6n4p10
  28. Kenneth, M. K., Muniu, J., & Kosgei, M. (2017). Short and long run effects of exchange rate volatility on foreign direct investment in Kenya. International Journal of Economics, Commerce and Management, 5(6), 386–399.
  29. Khan, A. M., & Sajid, Z. M. (2005). The exchange rate and monetary dynamics in Pakistan: An autoregressive distributed lag (ARDL) approach. The Lahore Journal of Economics, 10, 87-99.
  30. Kiliçarslan, Z. (2018). The relationship between exchange rate volatility and foreign direct investment in Turkey: Toda and Yamamoto causality analysis. International Journal of Economics and Financial Issues, 8(4), 61-67.
  31. Lawal, M. and Ijirshar, V. U. (2013). Empirical analysis of exchange rate volatility and Nigerian stock market performance. International Journal of Social Science and Research, 4(4), 1592-1600
  32. Mroua, M., & Trabelsi, L. (2020). Causality and dynamic relationships between exchange rate and stock market indices in BRICS countries. Journal of Economics Finance and Administrative Science, 25(50), 395–412. https://doi.org/10.1108/jefas-04-2019-0054
  33. Narayan, P. K. (2005). The saving and investment nexus for China: Evidence from cointegration tests. Applied Economics, 37(17), 1979-1990.
  34. National Bureau of Statistics. (2024). Nigeria Capital Importation Q2 2024. Retrieved from https://nigerianstat.gov.ng/elibrary/read/1241568
  35. Odili, O. (2015). Exchange rate volatility, stock market performance and foreign direct investment in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 5(2), 172–184.
  36. Okwuchukwu, O. (2015). Exchange Rate Volatility, Stock Market Performance and Foreign Direct Investment in Nigeria. International Journal of Academic Research in Accounting, 5(2), 172-184,
  37. Olabisi, O. E., & Akeju, K. F. (2024). The Impact of Exchange Rate Volatility and Inflation on the Nigerian Economy. Business & Management Compass, University of Economics Varna, 2, 5-16.
  38. Olisadebe, E. U. (1991). An appraisal of recent exchange rate policy measures in Nigeria. CBN Economic and Financial Review, 29(2), 156-185
  39. Olugbenga, A. A. (2012). Exchange rate volatility and stock market behaviour: The Nigerian experience. IISTE Journal for Sustainable Development. European Journal of Business and Management, 4(5), 31-39
  40. Omodero, C. O., & Ekwe, M. C. (2017). Impact of foreign direct investment (FDI) on the stock market performances in Nigeria (1985-2014). Applied Finance and Accounting, 3(1), 36-48. https://doi.org/10.11114/afa.v3i1.2140
  41. Omolola, J. S., & Adefemi, A. A. (2018). Modelling the Effect of Stock Market Volatility and Exchange Rate Volatility on Foreign Direct Investment in Nigeria: A New Framework Approach. Asian Economic and Financial Review, 8(12), 1482–1505. https://doi.org/10.18488/journal.aefr.2018.812.1482.1505
  42. Osinubi, T. S., & Amaghionyeodiwe, L. A. (2009). Foreign direct investment and exchange rate volatility in Nigeria. International Journal of Applied Econometrics and Quantitative Studies, 6(2), 83-116.
  43. Otchere, I., Soumaré, I., & Yourougou, P. (2015). FDI and Financial Market Development in Africa. The World Economy. 39(5), 651-678.
  44. Patrick, H. T., & Wai, U. (1973) Stock and bond issues and capital markets in less developed countries. International Monetary Fund Staff Papers. World Bank. Washington, D.C.
  45. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.
  46. Raja, R., Zehra, I., Chhapra, I. U., & Makhija, P. (2019). The relationship between exchange rate and stock prices in South Asian countries. International Journal of Innovation, Creativity and Change, 6(9), 113-135.
  47. Sakli Hniya, H., Boubker, A., Mrad, F., & Nafti, S. (2021). The impact of real exchange rate volatility on foreign direct investment inflows in Tunisia. International Journal of Economics and Financial Issues, 11(5), 52–67.
  48. Sharifi-Renani, H., & Mirfatah, M. (2012). The impact of exchange rate volatility on foreign direct investment in Iran. Procedia Economics and Finance, 1, 365 – 373.
  49. Sharmin, R., & Khandaker, S. (2015). The Determinant of Foreign Direct Investments, Evidence from Bangladesh. SSRN Electronic Journal. 10.2139/ssrn.2701598.
  50. Sokang, K. (2018). The impact of foreign direct investment on the economic growth in Cambodia: Empirical evidence. International Journal of Innovation and Economic Development, 4(5), 31–38. https://doi.org/10.18775/ijied.1849-7551-7020.2015.45.2003
  51. Stapley, N. F. (1986). The stock market: A guide for the private investor (3rd ed.). Woodhead-Faulkner.
  52. Stiglitz, J. E. (2000). The contributions of the economics of information to twentieth century economics. Quarterly Journal of Economics, 115(4), 1441-1478.
  53. Stock, J. H., & Watson, M. W. (2016). Dynamic Factor Models, Factor-Augmented Vector Autoregressions, and Structural Vector Autoregressions in Macroeconomics, Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1(2), 415-525.
  54. Suliman, A., Elmawazini, K., & Shariff, M. Z. (2015). Exchange rates and foreign direct investment: Evidence for Sub-Saharan Africa. The Journal of Developing Areas, 49(2), 203–226. http://www.jstor.org/stable/24241298
  55. Ullah, S., Haider, S. Z., & Azim, P. (2012). Impact of exchange rate volatility on foreign direct investment: A case study of Pakistan. Pakistan Economic and Social Review, 50(2), 121–138. Retrieved from https://www.jstor.org/stable/43855777
  56. Uzoma-Nwosu, D. C., & Orekoya, S. (2020). Exchange rate volatility and foreign direct investment in Nigeria: Array. EuroEconomica, 38(2). https://dj.univ-danubius.ro/index.php/EE/article/view/54
  57. Vanapruk, S. (2021). Effect of exchange rate, exchange rate volatility, and stock market return on foreign direct investment (Chulalongkorn University Theses and Dissertations No. 7654). Chulalongkorn University. https://digital.car.chula.ac.th/chulaetd/7654
  58. Wooldridge, J. M. (2015). Introductory Econometrics: A Modern Approach (6th ed.). Cengage Learning.
  59. Yabu, N., & Kimolo, D. (2020). Exchange Rate Volatility and Its Implications on Macroeconomic Variables in East African Countries. Applied Economics and Finance. 7. 145. 10.11114/aef.v7i3.4859.
  60. Yartey, C. A., & Adjasi, C. K. (2007). Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges. IMF Working Paper, WP/07/209.
  61. Zubair, Z.A. & Aladejare, S.A. (2017). Exchange rate volatility and stock market performance in Nigeria. Asian Journal of Multidisciplinary studies, 5(11), 194-201.