Effect of exchange rate dynamics on trade openness and foreign direct investment; Empirical evidence from Nigeria.

Abstract: This work examines the effect of exchange rate dynamics on trade openness and foreign direct investment in regards to Nigeria. This work examines Exchange rate as a pivotal macroeconomic variable used as a parameter for determining international competitiveness and it serves as an indicator of competitiveness for any country’s currency. The study employed ex-post facto design, data spanning from 1986-2023 was gotten from the CBN statistical bulletin and the study employed the Robust Least Square model, alongside other econometric tools, like the, Jarque-Bera statistic and Augmented Dickey fuller, in testing the following variables, exchange rate, trade openness and foreign direct investment. The findings revealed that exchange rate has a significant negative effect on trade openness in Nigeria and a significant positive effect on foreign direct investment (FDI) in Nigeria. The work concludes that the negative relationship between exchange rate and trade openness suggests that currency depreciation reduces trade openness in Nigeria, indicating that as the Naira depreciates, international trade declines while the positive relationship between exchange rate and FDI confirms that Naira depreciation attracts more foreign direct investment into Nigeria. It was based on the findings that the following recommendations were made; Trade Policy reforms in Nigeria should focus on improving trade facilitation through better infrastructure, streamlined customs procedures, and reducing trade barriers. Creating a stable and investor-friendly environment is crucial, this includes protecting property rights, enhancing the rule of law, reducing bureaucracy, and ensuring stable electricity and transportation infrastructure.