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ABSTRACT
Instability of macroeconomic variables shows the rate of unstableness, fluctuations or shocks. This study makes a modest contribution to the literature by analyzing in broad terms the nexus between the unstable nature of the two selected macroeconomic variables (exchange rate and interest rate) and FDI. Specifically, the study covered an impact analysis and a causal analysis. Basically, the study focused on the impact of exchange rate instability and interest rate instability on FDI in Nigeria and also the causal relationship amongst the three mentioned variables. This study utilized annual time series data from 1981 to 2017 from the Central Bank of Nigeria (CBN, 2018) statistical bulletin and the World Bank (2018) database. This study finds that exchange rate instability is not an important determinant of FDI in Nigeria. However, interest rate instability was found to decrease FDI in Nigeria. No causal relationship existed amongst the variables of interest. Although some control variables were found to granger cause other variables. Inflation granger caused FDI, economic growth granger caused interest rate, and inflation granger causes interest rate. The findings suggests amongst other things that to maintain a healthy inflow of FDI in Nigeria, the monetary authorities should maintain a stable interest rate and better still adopt a fixed exchange rate regime.
