An Appraisal of the Effects of Inflation on FDI Inflows and GDP Growth in Nigeria
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Background of the Study
Inflation is a persistent challenge that can significantly affect economic performance by altering the investment climate and influencing GDP growth. In Nigeria, high inflation rates are thought to deter FDI inflows by increasing uncertainty and reducing profit margins, while also negatively impacting GDP growth by eroding consumer purchasing power (Adeyemi, 2023). Conversely, lower inflation levels tend to create a more attractive environment for foreign investors and support sustainable economic growth (Okoro, 2024). Recent policy measures have aimed to curb inflation in order to boost FDI and stimulate GDP growth (Balogun, 2025). This study appraises the dual effects of inflation on attracting FDI and fostering GDP growth, investigating whether inflation acts as a barrier or a catalyst in the Nigerian economic context. By analyzing historical data and current economic policies, the research seeks to provide a comprehensive understanding of how inflation influences these critical variables and to offer policy recommendations for maintaining favorable economic conditions.
Statement of the Problem
Nigeria continues to face high inflation rates that are believed to hinder FDI inflows and impede GDP growth (Adeyemi, 2023). The persistent inflationary environment creates uncertainty, thereby reducing investor confidence and limiting economic expansion. This complex relationship between inflation, FDI, and GDP growth remains inadequately understood, leading to suboptimal policy interventions that fail to address the core challenges (Okoro, 2024; Balogun, 2025).
Objectives of the Study
- To evaluate the impact of inflation on FDI inflows.
- To assess the effect of inflation on GDP growth.
- To recommend policy measures that mitigate inflation’s negative effects on the economy.
Research Questions
- How does inflation affect FDI inflows in Nigeria?
- What is the impact of inflation on GDP growth?
- Which policy interventions can reduce the adverse effects of inflation on FDI and GDP?
Research Hypotheses
- High inflation negatively impacts FDI inflows.
- Elevated inflation rates are associated with reduced GDP growth.
- Policy measures that control inflation improve both FDI attraction and GDP performance.
Significance of the Study
This study is significant as it appraises the effects of inflation on FDI and GDP growth in Nigeria. The findings will provide crucial insights for policymakers in developing strategies to reduce inflation, thereby enhancing foreign investment and driving economic growth (Adeyemi, 2023; Okoro, 2024; Balogun, 2025).
Scope and Limitations of the Study
This study is limited to evaluating the impact of inflation on FDI inflows and GDP growth in Nigeria. It focuses exclusively on inflation-related macroeconomic variables without considering other external factors.
Definitions of Terms
• Inflation: The rate at which the overall price level for goods and services increases.
• FDI Inflows: Capital investments made by foreign entities into Nigeria.
• GDP Growth: The increase in the economic output of a country over time.
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