MODERATING EFFECT OF INFLATION ON FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH RELATIONSHIP IN NIGERIA

Abstract

Every rational economy is often poised to maintain low inflation alongside sustainable economic growth as her macroeconomic policy to ensure foreign inflows. Notably, high inflation harms economic activities while low inflation rate is advantageous. It then becomes imperative to ask, at what rate is inflation beneficial to an economy? This article estimates the impact of inflation on FDI-growth relationship for the period 1981-2017. In the results, there’s a positive long-run relationship between the three variables in question. An addendum to the findings show a nonlinear relationship, such that the Nigerian economy is at its highest growth rate when inflation is less than or equal to 2.80 percent threshold level of inflation and above which it becomes harmful to growth. Further findings show that the marginal effect of FDI at less than threshold level of inflation is positive to growth while at higher than threshold level of inflation is negative to growth. In conclusion, the Nigerian government should harness, develop and stabilize her macro economy to prevent the repellence of foreign investors by maintaining its inflation at its threshold level or less.