EFFECT OF EXCHANGE RATE ON PRIVATE DOMESTIC INVESTMENT IN NIGERIA: 1990-2020.

Abstract

The economy is currently experiencing a foreign exchange shortage despite all the efforts made by the government and the market forces(CBN) to stabilize the exchange rate. The high naira-dollar exchange rate has resulted in stagflation, resulting in price for products and services, affecting industries output and private investment in Nigeria. Therefore, This paper therefore seeks to examine the effect of exchange rate on private domestic investment in Nigeria. The paper made use of descriptive statistics, unit root tests, co-integration test and ARDL-ECM in analyzing the data obtained from the central bank of Nigeria statistical bulletin for a period of 30 years starting from 1990 to 2020. According to the findings, there is a negative and significant relationship between exchange rate and private domestic investment however, the beneficial effect was shown to be statistically insignificant (p-value 0.8444>0.05). The co-integration test, shows that the variables have long term connections. The paper recommended that by providing exchange rate protection, the low level of participation of domestic and foreign investors in private investment can be addressed. In addition to minimizing macroeconomic instabilities, stabilization measures like monetary, fiscal, and exchange rate controls can also encourage private investment by lowering uncertainty. However, if these policies are contractionary, they could impede the pace of the economy's expansion by limiting absorption, which would then reduce aggregate Therefore, expansionary exchange rate policy is encouraged for increase in private investment.