FOREIGN DIRECT INVESTMENT IN NIGERIA: VALIDATING THE EFFECT OF MACROECONOMIC INSTABILITY

The strive to attract foreign direct investment across world economies has become more resounding in the twenty first century, given its positive impact on gross domestic product, employment generation and revenue generation to the receiving economy. However, Nigeria’s lack of stability in macroeconomic variables, which determine the direction and degree of positive impact foreign direct investment has on the domestic economy. The study was therefore motivated based on this evidence to examine foreign direct investment in Nigeria by validating the effect of macroeconomic instability. The study investigated the research worries using Ordinary Least Squared econometric technique of time series data from 1990 to 2020 and found that macroeconomic volatilities influence foreign direct investment. Basically it was empirically justified that; interest rate volatility, surprisingly showed a positive and additive effect on foreign direct investment. Again, exchange rate volatility proved that inherent fluctuation in exchange rate in Nigeria caused foreign direct investment to dwindle by 0.25%. More so, the fluctuation in inflation rate causes the foreign direct investment to shrink by about 14%, consumer price index was not statistically significant in explaining the changes in foreign direct investment in Nigeria. Based on the empirical evidence validated, the study therefore recommended that, the government should enact and pursue diversification policies that would foster the growth of import substitution in the country, thereby building gross domestic product across all sectors of the economy to gain economic independence from the west. Conclusion were reached based on the validated empirical results that foreign direct investment has always been expected to exert positive economic effect on the receiving economy, but without check and balances of macroeconomic variables in the economy, further inflows would only translate to increased poverty, unemployment, more economic instability and crowing out effect on local industrial development drive over time.