The Effect of Interest Rates on Foreign Direct Investment (FDI) in Nigeria

This study investigated the influence of interest rates on foreign direct investment (FDI) in Nigeria, providing important insights into the dynamics of major economic variables such as exchange rates, real interest rates, and inflation rates. The study used quantitative approach, specifically econometric modelling in analysing the relationship between FDI and Interest rate. The results showed a substantial long-run cointegrating relationship between these variables, implying that they are interrelated and that changes in one might have long-term consequences for the others. Specifically, the analysis finds that higher exchange rates have a negative impact on FDI, whereas real interest rates have a modestly negative impact on investment decisions. Furthermore, the study showed that, while inflation rates have a favourable but minor long-term influence on FDI, they considerably diminish foreign investment in the near run. This emphasizes the significance of macroeconomic stability in attracting foreign investment, as excessive inflation can cause uncertainty, discouraging potential investors. The error correction model showed a speedy return to long-run equilibrium following short-run shocks, underlining the strength of the long-run correlations among the variables. In the light of these findings, the study emphasized the importance of consistent economic policies that stable currency rates and interest rates in order to create a more appealing investment climate in Nigeria. Keywords: ARDL; Exchange Rate, Foreign Direct Investment, Inflation, Real Interest Rate.