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Nigeria in the last few years has been clamoring for Foreign Investment in the country. This believed to be a facilitator to economic growth and development, which is believed to lead to industrialization of the economy in the long run. Foreign Investment is known to play an important role in the future as a source of capital, managerial expertise and technology for both the developing economies and economies in transition. Foreign Investment performance is based on certain factors that determine its flow. This study is focused at seeing the relevance of Exchange Rates on Foreign Private Investment In Nigeria.
Augumented Dickey – Fuller (ADF) unit root test statistics was used on the series for the model to check their stationarity of exchange rate and other relevant variables after which it was estimated. Times series data from period 1970 to 2001 was used for the analysis.
It was discovered after estimation that Exchange rate is the most important variable that affects Private Foreign Investment in Nigeria of all the other macroeconomic variables such as interest rates, inflation rate and Gross Domestic Product used in this study.
Exchange rate was recommended to be more market responsive, inflation rate should be pursued to single digit and there should be more generous incentives for foreign direct investment in the country.
According to Krishna (2003), Foreign Private Investment can be classified as Foreign Direct Investment (FDI) and Foreign Portfolio Investment (PFI). FDI is an investment in real assets where real assets consist of physical things such as factories, land, capital goods, infrastructure and inventories. The Multinational Corporations (MNCs) is chief source of DFI. This may come in both joint ventures as well as fully owned subsidiaries. Whereas, international investment in financial assets such as shares, debentures and bonds are called PFI (Foreign Portfolio Investment).
The need for foreign capital to supplement domestic resources was felt by the developing economies, in view of growing mismatch between their capital requirements and saving capacity. Further, many developing countries view foreign capital as a key element in their development strategy against the other forms of foreign financing as it aids in upgrading technology in hi-technology concentrated industries. Foreign capital generates employment in the host country when a multinational enterprise directly employs a number of host country citizens. It is argued that Foreign Private Investment (FPI) would play an important role in the future as a source of capital, managerial expertise, and technology for both developing economies and economies in transition. The direct and indirect benefits from appropriate FPI are substantially greater than normally assumed, but host countries have problems in realizing these flows.
Foreign Private Investment no doubt has positive contributions to the economy. Nevertheless, it has its own constrains to its free flow. This research work concerns itself with, to what extent has foreign private investment flowed into the economy as relates to its constraints?
The study is to examine the factors (especially exchange rate) that influence Foreign Private Investment and see to what extent it has aid or restricted Foreign Private Investment in Nigeria between 1970 and 2001.
The study is to suggest appropriate implementation of the factors base past records. The study also attempts to reflect the impact of exchange rate on increase/decrease of Foreign Private Investment In Nigeria.