Impact of Foreign Exchange Rate on Domestic Investment
CHAPTER ONE
OBJECTIVE OF THE STUDY
The objectives of the study are;
- To ascertain the relationship between foreign exchange rate and domestic investment
- To ascertain the impact of foreign exchange rate on Nigeria economy
- To examine the influence of foreign exchange rate on domestic investment
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Empirical Framework on Domestic Investment and Economic Growth
Empirical work on domestic investment and economic growth has been enormous and somewhat consistent with its findings. For instance, Villa (2008) applies a multivariate time series analysis on output growth rate, investment and government consumption in Italy from 1950 to 2005 and finds that the causality is running from domestic investment to economic growth. But empirical findings from Qin, Cagas, Quising and He (2006) show a causal relationship between domestic investment and economic growth show that the causality is running from economic growth to domestic investment. Furthermore, Tang, Seventh and Selvanathan(2008) investigated the causal link between foreign direct investment, domestic investment and economic growth for the period 1988- 2003 in China, by applying a multivariate VAR system with error correction model (ECM). Their findings show that domestic investment and economic growth are positively correlated, as such great economic growth spurs large domestic investment and vice versa. By implication, it means China’s domestic investment has a greater impact on growth than FDI. They, therefore, recommend that the country’s precedence should be based on encouraging and promoting domestic savings for domestic investment than attracting FDI. On the other hand, in the same study, Tang, Selvanathan and Selvanathan (2008) equally found that China’s domestic investment and GDP do not have much impact on FDI inflows in the long run. Export has been considered as one of the important variables in determining economic growth. Therefore, domestic investment and export may be fundamental in generating sustainable economic growth. Ghirmay, Grabowski and Sharma (2001) used co-integration test and Granger causality test to investigate the relationship between export-led and investment-led growth for 19 less developed countries. Findings from their study reveal that exports and investment are co-integrated with economic growth, particularly in Malaysia economy. However, these findings do not consistent with that of Sinha (1999) who uses the Johansen Co-integration test in some Asian countries and finds that domestic investment and exports are not co-integrated with economic growth in the case of Malaysia. Some studies, however, documented a close relationship between FDI and domestic investment in developing economies. In analysing the impact of FDI and domestic investment on economic growth in SubSaharan Africa for the period 1990-2003, Adams (2009) reveals that domestic investment is positively and significantly correlated with economic growth in both the Ordinary Least Squares (OLS) and fixed effects estimation.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to impact of foreign exchange rate on domestic investment
Sources of data collection
Data were collected from two main sources namely:
Primary source and Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain impact of foreign exchange rate on domestic investment
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of foreign exchange rate on domestic investment
Summary
This study was on impact of foreign exchange rate on domestic investment. Three objectives were raised which included; To ascertain the relationship between foreign exchange rate and domestic investment, to ascertain the impact of foreign exchange rate on Nigeria economy, to examine the influence of foreign exchange rate on domestic investment. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN in Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made accountants, human resource managers, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
Foreign exchange volatility affects the performance of macroeconomic indicators positively and negatively. The study concludes that sustainable Domestic Investment does not only depend on foreign exchange rate. Since Domestic Investment plays a vital role in stimulating the economy
Recommendation
The effectiveness of different exchange rate system in promoting competitiveness in international trade often depends on the appropriate choice of exchange rate regime for in countries. The exchange rate is one of the most important policy variables, which determines the trade flows, capital flows and foreign direct investment, inflation, international reserve and remittance of an economy. Many economies, especially African countries faced crisis due to miss application and bad choice of exchange rate regime. Therefore, this study recommends that monetary policy authorities should ensure a consistent exchange rate policy which domesticates the peculiarities of the Nigerian economy to ensure a favourable balance of payment position for Nigeria
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