Does Inflation Asymmetrically Affect Foreign Direct Investment in an Emerging Market? An Application of the Non-Linear Autoregressive Distributed Lag (NARDL) Model

Keywords: FDI Inflows, Inflation Rate, exchange rate, ARDL, NARDL

Abstract

In the last two decades, Nigeria has observed sporadic FDI inflows. The goal of this analysis is to examine the asymmetrical effect of inflation on FDI inflows in Nigeria. Utilizing the ARDL and non-linear ARDL frameworks, the research discusses the impact of inflation and the exchange rate on FDI inflows in Nigeria between 1981 and 2018. The results of the study affirm the asymmetric linkage between inflation and FDI inflows during the study period. The result has established that the exchange rate plays a substantial role in increasing inflows of FDI in Nigeria. Moreover, the downside and upward trends of inflation decrease FDI inflows in the long and short term. Past studies have identified the aggregate effect of inflation, which can include limited knowledge on the phenomenon, in order to assess FDI inflows. The nonlinear method adopted points out that all forms of variations (i.e., upside and downside) of independent variables may have a significant and different effect on FDI inflows. The non-linear linkage between FDI and inflation may be critical in constructing a long-term strategy.

Author Biographies

Gbenga Akinsola, Girne American University,

Phd Student

Victoria Olanrewaju, cyprus International University

MSc Student

Abisoye Abolaji, Girne American University,

MSc Student

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Published
2020-10-06
Section
Articles