The paper investigates the effects of real exchange rate misalignment on capital inflow in Nigeria between the year 1960 and 2011. The paper computes real effective exchange rate using 17 trading partners of Nigeria while the purchasing power parity (PPP) adjusting for Ballassa-Samuelson approach was employed to obtain equilibrium real exchange rate over time. Also, the two stage error correction method developed by Engel and Granger (1989) was used to find the effects of real exchange rate misalignment on foreign direct investment (FDI) inflow in the country. The paper observed that the extents of misalignment vary from time to time within the period of study and that this misalignment has a significant depreciating effect on the inflow of FDI to the country. The study recommends an open guided exchange rate system in order to minimize the extent of real exchange rate misalignment and thus reducing its effects on major economic indicators such as foreign direct investment.

The paper investigates the effects of real exchange rate misalignment on capital inflow in Nigeria between the year 1960 and 2011. The paper computes real effective exchange rate using 17 trading partners of Nigeria while the purchasing power parity (PPP) adjusting for Ballassa-Samuelson approach...