An Appraisal of FDI’s Effects on Consumer Price Inflation in Nigeria
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Background of the Study
Consumer price inflation remains a major economic challenge in Nigeria, affecting purchasing power and overall economic stability. FDI is often regarded as a mechanism for introducing competitive pressures and technological innovations that can improve production efficiency and lower costs. In theory, increased FDI leads to higher productivity and cost reductions, which can help moderate inflationary pressures by reducing the prices of goods and services (Olu, 2023). Empirical studies in other emerging economies have shown that FDI can exert downward pressure on consumer prices through improved supply chain efficiencies and enhanced competitive dynamics in local markets. In Nigeria, however, the relationship between FDI and inflation is complex and subject to various intervening factors, including exchange rate fluctuations, fiscal policies, and infrastructural deficits (Akinola, 2024). Recent economic reforms have sought to harness FDI as a tool for stabilizing prices, yet persistent inflation suggests that these efforts have not fully translated into lower consumer prices.
The theoretical framework for this study integrates supply and demand analysis with cost-push inflation models. It is posited that FDI, by boosting domestic production and increasing the supply of competitively priced goods, should help moderate inflation. Nevertheless, Nigeria’s economic environment is also characterized by external shocks, such as volatile oil prices and currency depreciation, which can counterbalance the inflation-mitigating effects of FDI. This study aims to appraise the net effect of FDI on consumer price inflation in Nigeria by examining data trends, sectoral variations, and the mediating role of external economic variables (Ibrahim, 2025).
Statement of the Problem
Despite efforts to attract FDI to stabilize the economy, Nigeria continues to grapple with high inflation rates. While FDI theoretically improves production efficiency and competitiveness, its impact on consumer price levels is not consistently observed in Nigeria. In some sectors, the cost reductions expected from foreign investments are offset by factors such as exchange rate volatility and supply chain disruptions, which drive up production costs and, consequently, consumer prices (Chinwe, 2023). Furthermore, the heterogeneous nature of FDI—varying by sector and investment type—results in uneven benefits, where only certain segments of the economy experience price moderation. The inability to reliably harness FDI to control inflation not only undermines consumer confidence but also complicates monetary policy. This disjunction highlights the need to understand the complex interplay between FDI, production efficiency, and price dynamics in Nigeria’s multifaceted economic landscape. Policymakers require clearer insights into the mechanisms by which FDI influences inflation to design interventions that effectively translate foreign investment benefits into lower consumer prices.
Objectives of the Study
• To analyze the relationship between FDI inflows and consumer price inflation in Nigeria.
• To identify mediating factors that influence the effectiveness of FDI in controlling inflation.
• To recommend policy measures that enhance the inflation-mitigating effects of FDI.
Research Questions
• How do FDI inflows impact consumer price levels in Nigeria?
• What factors moderate the relationship between FDI and inflation?
• Which policy measures can optimize the cost-reducing benefits of FDI to stabilize consumer prices?
Research Hypotheses
• H1: FDI inflows are negatively correlated with consumer price inflation in Nigeria.
• H2: Exchange rate stability and infrastructural efficiency moderate the impact of FDI on inflation.
• H3: Policy reforms aimed at enhancing market competition amplify the inflation-controlling effects of FDI.
Scope and Limitations of the Study
The study employs macroeconomic and sector-specific data from Nigerian sources over the past decade. Limitations include isolating FDI effects from other inflationary influences and potential data inconsistencies.
Definitions of Terms
• Consumer Price Inflation: The rate at which the overall level of prices for goods and services rises.
• FDI: Foreign Direct Investment from international investors.
• Cost-Push Inflation: Inflation resulting from increased production costs.
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