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Investigating the Joint Impact of Exchange Rate and Foreign Direct Investment Inflows on Domestic Interest Rate in Nigeria

Author

Listed:
  • Innocent Chile Nzeh

    (Department of Cooperative and Rural Development, University of Agriculture and Environmental Sciences, Umuagwo, Imo State, Nigeria)

  • Uche Collins Nwogwugwu

    (Department of Economics, Nnamdi Azikiwe University, Awka, Nigeriac)

  • Maria Chinecherem Uzonwanne

    (Department of Economics, Nnamdi Azikiwe University, Awka, Nigeriac)

  • Christopher Urua Kalu

    (Department of Economics, Nnamdi Azikiwe University, Awka, Nigeriac)

  • Emmanuel Chinonye Akalazu

    (Department of Marketing, University of Agriculture and Environmental Sciences Umuagwo, Imo State, Nigeria)

Abstract

The sensitive nature of interest rate has spurred empirical interests on the factors that determine it. This paper examined the joint impact of exchange rate and foreign direct investment inflows on interest rate in Nigeria over the period from 1981-2022. The study made use of the auto regressive distributed lag (ARDL) bounds test and results of findings reveal that in both the short-run and the long-run the impact of the interaction between FDI inflows and exchange rate on real interest rate was negative and significant. Also, while credit to the private sector was found to have significant positive impact on real interest rate in both the time horizons, the impact of consumer price index was negative only in the short. Oil revenue was found to impact positively on real interest rate only in the long-run, but the impact of broad money supply was negative and significant in both the short-run and the long-run. The study suggests that policies to regulate domestic interest rate should focus on joint regulation of both exchange rate and FDI inflows and this requires a synergy between monetary and fiscal policies.

Suggested Citation

  • Innocent Chile Nzeh & Uche Collins Nwogwugwu & Maria Chinecherem Uzonwanne & Christopher Urua Kalu & Emmanuel Chinonye Akalazu, 2024. "Investigating the Joint Impact of Exchange Rate and Foreign Direct Investment Inflows on Domestic Interest Rate in Nigeria," Financial Economics Letters, Anser Press, vol. 3(2), pages 1-15, February.
    • Handle: RePEc:bba:j00007:v:3:y:2024:i:2:p:1-15:d:298
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    References listed on IDEAS

    as
    1. Muhammad Mahmud Mostafa, 2020. "Impacts of Inflation and Exchange Rate on Foreign Direct Investment in Bangladesh," International Journal of Science and Business, IJSAB International, vol. 4(11), pages 53-69.
    2. Kingsley Nwagu, 2023. "The impact of macroeconomic variables on foreign direct investment in Nigeria," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 16(1), pages 30-35.
    3. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
    4. Yanping Zhao & Xiaoyan Li & Jakob De Haan, 2022. "The Time-Varying Causal Relationship Between International Capital Flows And The Real Effective Exchange Rate: New Evidence For China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 67(04), pages 1253-1274, June.
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