Foreign Exchange Rate Unification and Foreign Portfolio Investment Inflows: Evidence from Nigeria

This study examines the impact of foreign exchange rate unification on foreign portfolio investment (FPI) inflows in Nigeria, using data from 2014 to 2024. The analysis employs the Autoregressive Distributed Lag (ARDL) model to explore both long-run and short-run dynamics between foreign exchange rates and FPI. The findings reveal that a unified official exchange rate positively influences FPI in the long run, with a 1% appreciation in the official rate leading to a 0.438% increase in FPI. In contrast, deviations in the parallel market exchange rate exert a significant negative effect, reducing FPI by 0.564%. Macroeconomic variables such as inflation and interest rates also play a crucial role, where higher inflation deters FPI while higher interest rates attract it. The GDP of Nigeria positively correlates with FPI, signalling that economic growth bolsters investor confidence. The error correction term demonstrates that approximately 70% of short-term disequilibrium is corrected annually, suggesting a rapid adjustment process. These results underscore the importance of exchange rate unification and macroeconomic stability in attracting foreign portfolio investments