Asymmetric impact of inflation on foreign direct investment in Nigeria: an application of the Non-Linear Autoregressive Distributed Lag (NARDL) model
Keywords:
FDI Inflows, Inflation Rate, exchange rate, ARDL, NARDL, NigeriaAbstract
In the last two decades, Nigeria has observed sporadic FDI inflows. The study aims to examine the asymmetrical effect of inflation on FDI inflows in Nigeria. Utilizing the ARDL and non-linear ARDL frameworks, the research discusses the impact of inflation and the exchange rate on FDI inflows in Nigeria between 1981 and 2018. The results of the study affirm the asymmetric linkage between inflation and FDI inflows during the study period. The finding established that the exchange rate plays a substantial role in increasing inflows of FDI in Nigeria. Moreover, the downside and upward trends of inflation decrease FDI inflows in the long and short term. Past studies have identified the aggregate effect of inflation, which can include limited knowledge on the phenomenon, in order to assess FDI inflows. The nonlinear method adopted points out that all forms of variations (i.e., upside and downside) of independent variables may have a significant and different effect on FDI inflows. The non-linear linkage between FDI and inflation may be critical to constructing a long-term strategy. Based on these findings, recommendations are suggested.
References
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Asmae, A., & Ahmed, B. (2019). Impact of the Exchange Rate and Price Volatility on FDI Inflows: Case of Morocco and Turkey. Applied Economics and Finance, 6(3), 87-104
Awosusi, A. A., Ajayi, T., & Adebayo, T. (2020). Dynamic Aid-Growth Relationship in Nigeria: A Two-Gap Approach. LAÜ Sosyal Bilimler Dergisi, 11(1), 1-17..
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Ball, L., Mankiw, N. G., & Reis, R. (2005). Monetary policy for inattentive economies. Journal of monetary economics, 52(4), 703-725.
Bekhet, H. A., & Al-Smadi, R. W. (2014). Determining the causality relationships among FDI determinants: evidence from Jordan. International Journal of Sustainable Economy, 6(3), 261-274
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Ibrahim, M. H. (2015). Oil and food prices in Malaysia: a nonlinear ARDL analysis. Agricultural and Food Economics, 3(1), 1-14.
Khandare, V. B. (2016). Impact of exchange rate on FDI: A comparative study of India and China. International Journal of Applied Research, 2(3), 599-602.
Khatabi, S., Komijani, A., Mohammadi, T., & Memarnejad, A. (2020). Factors Associated with FDI Inflows to MENA Region: An Empirical Examination. Iranian Economic Review, 24(2), 313-331Katrakilidis, C., & Trachanas, E. (2012). What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration. Economic Modelling, 29(4), 1064-1069.
Lardic, S., & Mignon, V. (2008). Oil prices and economic activity: An asymmetric cointegration approach. Energy Economics, 30(3), 847-855.
Nyoni, T., & Bonga, W. G. (2018). What Determines Economic Growth in Nigeria?. Dynamic Research Journals (DRJ) Journal of Business & Management, 1(1), 37-47.
Onyibor, K., Bah, S. İ., & Tomiwa, A. (2018). Aid-Growth Relationship: Evidence From a Co-integratıon Analysis for the Five Poorest Countries of the World. LAÜ Sosyal Bilimler Dergisi, 9(2), 121-137.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.
Pesaran, M. H., & Shin, Y. (1998). An autoregressive distributed-lag modelling approach to cointegration analysis. Econometric Society Monographs, 31, 371-413.
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American statistical Association, 94(446), 621-634.
Sahoo, P., & Dash, R. K. (2014). India's surge in modern services exports: Empirics for policy. Journal of Policy Modeling, 36(6), 1082-1100.
Safarzadeh, G., & Khodavaisi, H. (2020). Asymmetric Effect of Inflation on Attracting Foreign Direct Investment in Iran.
Schorderet, Y. (2003). Asymmetric cointegration. Genève: Université de Genève/Faculté des sciences économiques et sociales.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in honor of Peter Schmidt (pp. 281-314). Springer, New York, NY.
Singhania, M., & Gupta, A. (2011). Determinants of foreign direct investment in India. Journal of international trade law and policy.
Tobin, J. (1965). Money and economic growth. Econometrica: Journal of the Econometric Society, 671-684.
Qamruzzaman, M., Karim, S., & Jianguo, W. (2019). Revisiting the Nexus Between Financial Development, Foreign Direct Investment and Economic Growth of Bangladesh: Evidence from Symmetric and Asymmetric Investigation. Journal of Sustainable Development Studies, 12(2).
Uddin, M., Chowdhury, A., Zafar, S., Shafique, S., & Liu, J. (2019). Institutional determinants of inward FDI: Evidence from Pakistan. International Business Review, 28(2), 344-358.
Valli, M., & Masih, M. (2014). Is there any causality between inflation and FDI in an ‘inflation targeting’regime? Evidence from South Africa.
Vijayakumar, N., Sridharan, P., & Rao, K. C. S. (2010). Determinants of FDI in BRICS Countries: A panel analysis. International Journal of Business Science & Applied Management (IJBSAM), 5(3), 1-13.
World Bank. (2020). World development indicators. https://data.worldbank.org/country/nigeria
Yi, C. F., Idris, S., & Lily, J. (2020). Determinants of Foreign Direct Investment (FDI) in Asean-5 Countries: A Review. Malaysian Journal of Business and Economics (MJBE), 77-77.
Yol, M. A., & Teng, N. T. (2012). Estimating the domestic determinants of foreign direct investment flows in Malaysia: Evidence from cointegration and error-correction model. Jurnal Pengurusan (UKM Journal of Management), 28.
Zakari, M. (2017). The impact of exchange rate fluctuations on foreign direct investment in Nigeria. Journal of Finance and Accounting, 5(4), 165-170.
Zangina, S., & Hassan, S. (2020). Corruption and FDI inflow to Nigeria: a nonlinear ARDL approach. Journal of Financial Crime.
Adebayo, T. S., Awosusi, A. A., & Adeshola, I. (2020b). Determinants of CO2 Emissions in Emerging Markets: An Empirical Evidence from MINT Economies. International Journal of Renewable Energy Development, 9(3), 411-422.
Adebayo, T. S. (2020a). Dynamic Relationship between Oil Price and Inflation in Oil Exporting Economy: Empirical Evidence from Wavelet Coherence Technique. Energy Economics Letters, 7(1), 12-22.
Adebayo, T. S. (2020b). Does the Oil Price Influence the Exchange Rates in Nigeria? Empirical Evidence from Wavelet and Causality Approaches. Asian Journal of Economics and Empirical Research, 7(2), 126-135
Ahn, Y. S., Adji, S. S., & Willett, T. D. (1998). The effects of inflation and exchange rate policies on direct investment to developing countries. International Economic Journal, 12(1), 95-104.
Ajayi, S. I. (2008). Foreign direct investment in sub-Saharan Africa: origins, targets, impact and potential.
Akinsola, G. D., & Adebayo, T. S. (2021). Investigating the Causal Linkage Among Economic Growth, Energy Consumption and CO2 Emissions in Thailand: An Application of the Wavelet Coherence Approach. International Journal of Renewable Energy Development, 10(1), 17-26.
Asmae, A., & Ahmed, B. (2019). Impact of the Exchange Rate and Price Volatility on FDI Inflows: Case of Morocco and Turkey. Applied Economics and Finance, 6(3), 87-104
Awosusi, A. A., Ajayi, T., & Adebayo, T. (2020). Dynamic Aid-Growth Relationship in Nigeria: A Two-Gap Approach. LAÜ Sosyal Bilimler Dergisi, 11(1), 1-17..
Babajide, A. A., & Lawal, A. I. (2016). Macroeconomic behaviour and FDI inflows in Nigeria: An application of the ARDL model. British Journal of Economics, Finance and Management Sciences, 11(1), 84-107.
Ball, L., Mankiw, N. G., & Reis, R. (2005). Monetary policy for inattentive economies. Journal of monetary economics, 52(4), 703-725.
Bekhet, H. A., & Al-Smadi, R. W. (2014). Determining the causality relationships among FDI determinants: evidence from Jordan. International Journal of Sustainable Economy, 6(3), 261-274
Beton Kalmaz, D., & Adebayo, T. S. (2020). Ongoing Debate Between Foreign Aid and Economic Growth in Nigeria: A Wavelet Analysis. Social Science Quarterly. https://doi.org/10.1111/ssqu.12841
Boateng, A., Hua, X., Nisar, S., & Wu, J. (2015). Examining the determinants of inward FDI: Evidence from Norway. Economic Modelling, 47, 118-127.
Dal Bianco, S., & Loan, N. C. T. (2017). FDI inflows, price and exchange rate volatility: New empirical evidence from Latin America. International Journal of Financial Studies, 5(1), 6.
Dunning, J. H. (1980). Toward an eclectic theory of international production: Some empirical tests. Journal of international business studies, 11(1), 9-31.
Dunning, J. H., & Lundan, S. M. (2008). Institutions and the OLI paradigm of the multinational enterprise. Asia Pacific Journal of Management, 25(4), 573-593.
Erramilli, M. Krishna, and E. D. Derrick. "Uncertainty and foreign direct investment: the role of moderators." International Marketing Review (1995).
Eregha, P. B. (2020). Exchange Rate Regimes and Foreign Direct Investment Flow in West African Monetary Zone (WAMZ). International Economic Journal, 34(1), 85-99.
Gokmenoglu, K., Kirikkaleli, D., & Eren, B. M. (2019). Time and frequency domain causality Testing: The causal linkage between FDI and economic risk for the case of Turkey. The Journal of International Trade & Economic Development, 28(6), 649-667..
Granger, C. W. J., & Yoon, G. (2002). Hidden Cointegration. Department of Economics Discussion Paper 2002-02, University of California, San Diego.
Gujarati, D.N. and D.C. Porter. (1999). Essentials of econo-metrics. 1999. New York: McGraw Hill 2010
Ibrahim, M. H. (2015). Oil and food prices in Malaysia: a nonlinear ARDL analysis. Agricultural and Food Economics, 3(1), 1-14.
Khandare, V. B. (2016). Impact of exchange rate on FDI: A comparative study of India and China. International Journal of Applied Research, 2(3), 599-602.
Khatabi, S., Komijani, A., Mohammadi, T., & Memarnejad, A. (2020). Factors Associated with FDI Inflows to MENA Region: An Empirical Examination. Iranian Economic Review, 24(2), 313-331Katrakilidis, C., & Trachanas, E. (2012). What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration. Economic Modelling, 29(4), 1064-1069.
Lardic, S., & Mignon, V. (2008). Oil prices and economic activity: An asymmetric cointegration approach. Energy Economics, 30(3), 847-855.
Nyoni, T., & Bonga, W. G. (2018). What Determines Economic Growth in Nigeria?. Dynamic Research Journals (DRJ) Journal of Business & Management, 1(1), 37-47.
Onyibor, K., Bah, S. İ., & Tomiwa, A. (2018). Aid-Growth Relationship: Evidence From a Co-integratıon Analysis for the Five Poorest Countries of the World. LAÜ Sosyal Bilimler Dergisi, 9(2), 121-137.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.
Pesaran, M. H., & Shin, Y. (1998). An autoregressive distributed-lag modelling approach to cointegration analysis. Econometric Society Monographs, 31, 371-413.
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American statistical Association, 94(446), 621-634.
Sahoo, P., & Dash, R. K. (2014). India's surge in modern services exports: Empirics for policy. Journal of Policy Modeling, 36(6), 1082-1100.
Safarzadeh, G., & Khodavaisi, H. (2020). Asymmetric Effect of Inflation on Attracting Foreign Direct Investment in Iran.
Schorderet, Y. (2003). Asymmetric cointegration. Genève: Université de Genève/Faculté des sciences économiques et sociales.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in honor of Peter Schmidt (pp. 281-314). Springer, New York, NY.
Singhania, M., & Gupta, A. (2011). Determinants of foreign direct investment in India. Journal of international trade law and policy.
Tobin, J. (1965). Money and economic growth. Econometrica: Journal of the Econometric Society, 671-684.
Qamruzzaman, M., Karim, S., & Jianguo, W. (2019). Revisiting the Nexus Between Financial Development, Foreign Direct Investment and Economic Growth of Bangladesh: Evidence from Symmetric and Asymmetric Investigation. Journal of Sustainable Development Studies, 12(2).
Uddin, M., Chowdhury, A., Zafar, S., Shafique, S., & Liu, J. (2019). Institutional determinants of inward FDI: Evidence from Pakistan. International Business Review, 28(2), 344-358.
Valli, M., & Masih, M. (2014). Is there any causality between inflation and FDI in an ‘inflation targeting’regime? Evidence from South Africa.
Vijayakumar, N., Sridharan, P., & Rao, K. C. S. (2010). Determinants of FDI in BRICS Countries: A panel analysis. International Journal of Business Science & Applied Management (IJBSAM), 5(3), 1-13.
World Bank. (2020). World development indicators. https://data.worldbank.org/country/nigeria
Yi, C. F., Idris, S., & Lily, J. (2020). Determinants of Foreign Direct Investment (FDI) in Asean-5 Countries: A Review. Malaysian Journal of Business and Economics (MJBE), 77-77.
Yol, M. A., & Teng, N. T. (2012). Estimating the domestic determinants of foreign direct investment flows in Malaysia: Evidence from cointegration and error-correction model. Jurnal Pengurusan (UKM Journal of Management), 28.
Zakari, M. (2017). The impact of exchange rate fluctuations on foreign direct investment in Nigeria. Journal of Finance and Accounting, 5(4), 165-170.
Zangina, S., & Hassan, S. (2020). Corruption and FDI inflow to Nigeria: a nonlinear ARDL approach. Journal of Financial Crime.
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2019-12-30
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Asymmetric impact of inflation on foreign direct investment in Nigeria: an application of the Non-Linear Autoregressive Distributed Lag (NARDL) model. (2019). Timisoara Journal of Economics and Business, 13(2), 87-106. https://www.tjeb.ro/index.php/tjeb/article/view/338
