Assessing the Role of FDI in Modulating the Effects of Inflation on Economic Growth in Nigeria
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Background of the Study
Inflation often poses a significant challenge to economic growth by reducing purchasing power and increasing production costs. In Nigeria, FDI is seen as a critical driver that can offset some of the adverse effects of inflation by introducing new capital, technology, and management practices (Adeyemi, 2023). When foreign investment flows into an economy, it can stimulate productivity and create jobs, which in turn support economic growth even in inflationary environments (Okoro, 2024). However, high inflation may also deter FDI if it creates uncertainty and erodes profit margins. Recent studies indicate that the moderating effect of FDI on inflation’s impact is crucial for sustaining long-term economic expansion (Balogun, 2025). This study investigates the role of FDI in modulating the effects of inflation on economic growth in Nigeria, examining the channels through which FDI can cushion the economy against inflationary pressures and contribute to more stable growth trajectories.
Statement of the Problem
Nigeria faces the dual challenge of persistent inflation and fluctuating economic growth. While FDI has the potential to bolster growth, its ability to mitigate the adverse impacts of inflation remains uncertain (Adeyemi, 2023). Inconsistent FDI inflows, compounded by high inflation rates, have led to suboptimal economic performance. The interplay between these variables is not well understood, thereby hindering the development of effective policies that leverage FDI to counteract inflation’s negative effects (Okoro, 2024; Balogun, 2025).
Objectives of the Study
- To evaluate how FDI influences economic growth amid inflationary pressures.
- To assess the moderating role of FDI on the adverse effects of inflation.
- To propose policy measures that enhance the beneficial impact of FDI on economic growth.
Research Questions
- How does FDI modulate the effects of inflation on economic growth in Nigeria?
- What are the key channels through which FDI influences growth in an inflationary context?
- Which policy measures can maximize the positive impact of FDI during periods of high inflation?
Research Hypotheses
- FDI positively moderates the negative effects of inflation on economic growth.
- Higher levels of FDI are associated with more resilient economic growth despite inflation.
- Policy interventions that attract FDI improve growth outcomes in an inflationary environment.
Significance of the Study
This study is significant as it examines the critical role of FDI in mitigating the adverse effects of inflation on economic growth in Nigeria. The results will guide policymakers in formulating strategies to attract FDI and ensure that its benefits are fully harnessed to support sustainable growth (Adeyemi, 2023; Okoro, 2024; Balogun, 2025).
Scope and Limitations of the Study
This study is limited to assessing the role of FDI in modulating the effects of inflation on economic growth in Nigeria. It focuses solely on these variables without considering additional macroeconomic factors.
Definitions of Terms
• FDI: Investment by foreign entities in domestic businesses or assets.
• Inflation: The general rise in price levels over time.
• Economic Growth: An increase in the production and consumption of goods and services.
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