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.
