Journal of Economics and Management Volume 20, No. 1 March, 2024

Revisiting Foreign Direct Investment and Exchange Rate Relationship with Stock Market Development in Nigeria

Kolawole Subair

Department of Economics Nigerian Army University Biu, Nigeria

Zakaria Yakubu

Department of Economics Nigerian Army University Biu, Nigeria

Abstract

This study investigates the relationship of foreign direct investment (FDI) and exchange rate to the stock market development in Nigeria. The study used ordinary lease square, quantile regression and autoregressive distributed lag (ARDL) bounds techniques to determine long-run relationship among the variables. Annual time-series data from 1990 – 2021 was used. The results suggest that FDI and exchange rate have negative relationship with the stock market development in the short run, while the reverse is the case in the long run. The foreign direct investments in Nigeria if increased can improve the exchange rate, which in turn will have a combined effect on stock market development as there is unidirectional causal relationship from foreign direct investment to exchange rate. The policy maker should formulate policies that will improve exchange rate position through the foreign direct investment especially by the improvement of the security situation of Nigeria.

Keywords：Market Capitalization, Investment, Exchange Rate, Financial Development, Quantile Regression, Nigeria.

JEL Classifications：C32, F21, F31, G12, G23

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