Open Access Journal Article

Investigating the Joint Impact of Exchange Rate and Foreign Direct Investment Inflows on Domestic Interest Rate in Nigeria

by Innocent Chile Nzeh a,* orcid ,  Uche Collins Nwogwugwu b orcid ,  Maria Chinecherem Uzonwanne b orcid ,  Christopher Urua Kalu b  and  Emmanuel Chinonye Akalazu c
a
Department of Cooperative and Rural Development, University of Agriculture and Environmental Sciences, Umuagwo, Imo State, Nigeria
b
Department of Economics, Nnamdi Azikiwe University, Awka, Nigeriac
c
Department of Marketing, University of Agriculture and Environmental Sciences Umuagwo, Imo State, Nigeria
*
Author to whom correspondence should be addressed.
FEL  2024, 26; 3(2), 26; https://doi.org/10.58567/fel03020001
Received: 21 December 2023 / Accepted: 3 February 2024 / Published Online: 5 February 2024
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Abstract

The sensitive nature of interest rate has spurred empirical interests on the factors that determine it. This paper examined the joint impact of exchange rate and foreign direct investment inflows on interest rate in Nigeria over the period from 1981-2022. The study made use of the auto regressive distributed lag (ARDL) bounds test and results of findings reveal that in both the short-run and the long-run the impact of the interaction between FDI inflows and exchange rate on real interest rate was negative and significant. Also, while credit to the private sector was found to have significant positive impact on real interest rate in both the time horizons, the impact of consumer price index was negative only in the short. Oil revenue was found to impact positively on real interest rate only in the long-run, but the impact of broad money supply was negative and significant in both the short-run and the long-run. The study suggests that policies to regulate domestic interest rate should focus on joint regulation of both exchange rate and FDI inflows and this requires a synergy between monetary and fiscal policies.

Keywords: Exchange rate; FDI; Interest rate; ARDL;
Copyright: © 2024 by Nzeh, Nwogwugwu, Uzonwanne, Kalu and Akalazu. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
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ACS Style
Nzeh, I. C.; Nwogwugwu, U. C.; Uzonwanne, M. C.; Kalu, C. U.; Akalazu, E. C. Investigating the Joint Impact of Exchange Rate and Foreign Direct Investment Inflows on Domestic Interest Rate in Nigeria. Financial Economics Letters, 2024, 3, 26. https://doi.org/10.58567/fel03020001
AMA Style
Nzeh I C, Nwogwugwu U C, Uzonwanne M C, Kalu C U, Akalazu E C. Investigating the Joint Impact of Exchange Rate and Foreign Direct Investment Inflows on Domestic Interest Rate in Nigeria. Financial Economics Letters; 2024, 3(2):26. https://doi.org/10.58567/fel03020001
Chicago/Turabian Style
Nzeh, Innocent C.; Nwogwugwu, Uche C.; Uzonwanne, Maria C.; Kalu, Christopher U.; Akalazu, Emmanuel C. 2024. "Investigating the Joint Impact of Exchange Rate and Foreign Direct Investment Inflows on Domestic Interest Rate in Nigeria" Financial Economics Letters 3, no.2:26. https://doi.org/10.58567/fel03020001
APA style
Nzeh, I. C., Nwogwugwu, U. C., Uzonwanne, M. C., Kalu, C. U., & Akalazu, E. C. (2024). Investigating the Joint Impact of Exchange Rate and Foreign Direct Investment Inflows on Domestic Interest Rate in Nigeria. Financial Economics Letters, 3(2), 26. https://doi.org/10.58567/fel03020001

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