Research Article | Open Access
Volume 2023 - 4 | Article ID 307 | http://dx.doi.org/10.51521/WJMRR.2023.4108
Academic Editor: John Bose
1Department
of Finance, Western Governors University. Indiana, USA, ORCID: 0009-0005-6280-7939
2Department
of Criminology & Security Studies, University of Jos. Plateau, Nigeria. ORCID:
0009-0002-4613-3012
3Department
of Accounting, Kwara State University, Kwara, Nigeria. ORCID:
0009-0002-9042-0297
4Department of Economics and Management, Zhejiang Normal University, Zhejiang Province, China, ORCID: 0000-0001-6850-9477
Corresponding Author: Ayobami Gabriel
Olanrewaju, Department of Finance,
Western Governors University. Indiana, USA, ORCID: 0009-0005-6280-7939.
Citation: Ayobami Gabriel Olanrewaju, David Yakubu, Adebayo
Oluwatosin Dada, Peace Oluwagbotemi Oladipo (2023) The Naira’s Floating
Exchange Rate Regime: Capital Flows and Investment Implications. World J
Multidiscip Res Rev, 4(1);1-10.
Copyright: © 2023, Ayobami Gabriel Olanrewaju, et al.,
This is an open-access article distributed under the terms of the Creative Commons
Attribution 4.0 International License, which permits unrestricted use,
distribution and reproduction in any medium, provided the original author and
source are credited.
Abstract
Nigeria’s adoption of a floating exchange rate regime in 2016 marked a pivotal shift in its currency policy, with significant implications for capital flows and investment. This paper examines how the transition from a de facto peg of the Naira to a more flexible exchange rate has affected foreign capital inflows and investment behavior. We outline key research questions on whether a floating Naira has attracted short term portfolio investments or deterred long term foreign direct investment (FDI), and we hypothesize divergent effects on these capital flow components. Using econometric analysis on data from 2000–2021, we employ time series models to assess changes in capital inflows before and after the float, controlling for global push factors and domestic economic conditions. The results indicate that the post-2016 floating regime coincided with a surge in volatile portfolio inflows (notably into equities and money markets) but a short run decline in FDI (as a share of GDP). These findings contribute to exchange rate theory by highlighting the trade off between exchange rate flexibility and investment stability. Policy implications suggest that while a float can restore investor confidence in the currency’s price mechanism, complementary measures are needed to attract stable, long term investment.
Keywords: Naira, Floaating exchange
rate, Capital flows, Foreign direct investment, Portfolio investment, Nigeria
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