ABSTRACT
This study is on the effect of exchange rate and inflation on foreign direct investment and its relationship with economic growth. Its main objective is to find the effect of inflation and exchange rate and the bidirectional influences between FDI and economic growth in Nigeria. A twenty one year period was studied. A linear regression analysis was used on the twenty one year data to determine the relationship between inflation, exchange rate, FDI inflows and economic growth. The study reveals that FDI follow economic growth occasioned by trade openness which saw the entry of some major companies especially the telecommunication companies, while Inflation has positive effect on FDI. However exchange rate has effect on FDI.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY.
In most developing countries there is the dearth of capital for investment which has affected the economic situation of these nations. In other to ameliorate the situation various governments of these nations has now focused much attention on investment especially foreign direct investment which will not only guarantee employment but will also impact positively on economic growth and development. FDI is needed to reduce the difference between the desired gross domestic investment and domestic savings. Jenkin and Thomas (2002) assert that FDI is expected to contribute to economic growth not only by providing foreign capital but also by crowding in additional domestic investment. By promoting both forward and backward linkages with the domestic economy, additional employment is indirectly created and further economic activity stimulated.
According to Adegbite and Ayadi (2010) FDI helps fill the domestic revenue-generation gap in a developing economy, given that most developing countries’ governments do not seem to be able to generate sufficient revenue to meet their expenditure needs. Other benefits are in the form of externalities and the adoption of foreign technology. Externalities here can be in the form of licensing, imitation, employee training and the introduction of new processes by the foreign firms (Alfaro, Chanda, Kalemli- Ozean and Sayek 2006).
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