Exchange Rate Volatility on Investment and Growth in Nigeria, An Empirical Analysis

Abstract

This paper examines the effect of exchange rate volatility on investment and growth in Nigeria over the period of 1986 to 2014. The vector error correction method, impulse responses function, co-integration and Augmented Dickey Fuller (ADF) test for stationarity were employed to capture the interactions between the variables. The results confirm the existence of long run relationship between exchange rate, investment, interest rate, inflation and growth. Finally the results show that exchange rate volatility has a negative effect with investment and growth while exchange rate volatility has a positive relationship with inflation and interest rate in Nigeria. Based on our findings, we recommended that the policy makers should developed sound exchange rate management system in the country potent enough for better growth in the economy.