Exchange Rate Policy and Sources of Investment Financing: Further Evidence from Nigeria (1970-2012)

Abstract

The paper examined the role of exchange rate in stimulating both domestic and foreign investment finance in Nigeria. The paper used secondary data from Nigeria and adopted error correction mechanism to estimate the models.  The result showed that interest rate real GDP and trade openness are more important than exchange rate as the most critical factors in financing investment in Nigeria. The policy implication of this finding of non-relevance of exchange rate is that domestic cost of investment finance is the key to promoting investment in Nigeria. There is therefore, a need for sound monetary policy that eases the cost of borrowing in addition to any other macroeconomic stabilization policy that might be implemented in promoting and boosting investment finance in flow both from domestic and foreign markets.

Keywords: Exchange Rate Policy, Investment Financing, Nigerian Economy