Monetary Policy and Foreign Direct Investment in Nigeria

Resumo

This study analysed the nexus between monetary policy and Foreign Direct Investment (FDI) in Nigeria (1981-2022). The study uses both ARDL and Nonlinear
ARDL econometric techniques. The analysis reveals that monetary policy has long-run and short-run relationships with FDI in Nigeria even
though the instruments do not influence FDI similarly. Real Exchange Rate (REXR) has a negative symmetric impact on FDI in both short and long terms.
There is however no asymmetric relationship between REXR and FDI. A stable and market-reflective exchange rate will have a stronger effect on FDI than a
currency appreciation in Nigeria. The short-term impact is found to be significant. Monetary contraction in terms of Monetary Policy Rate (MPR) has
both short and long-term negative impacts on FDI and an asymmetric effect on FDI with the negative shock having a stronger impact. Money Supply (M2)
is attractive to FDI in the short term but not significantly impactful on FDI in the long term. The study recommends the implementation of a moderate and
stable monetary policy rate and exchange rate systems that balance the need to create an investment-friendly climate to make Nigeria a destination for
foreign investors.