Abstract:

Many studies have attested to the vital roles of foreign capital inflow in bridging the savings-investment gaps in the developing countries so as to bring about the so much desired development.  The impediment of exchange rate volatility (EXRV) on sourcing for this much desired foreign capital is also notable. However it was observed in literature that the negative effect of EXRV could be mitigated by the level of financial development prevalent in the country. This study focused on investigating the implication of interacting the financial development with exchange rate volatility on one hand and financial development with capital inflows on the other hand. The result of our GMM estimation indicates significant positive effect of labour, Interaction of Remittance with Financial Development (FD) and Interaction of EXRV with FD on GDP. Also FDI has positive but insignificant effect on GDP. However, Remittance, FD, EXRV and the interaction of FDI with FD has significant negative impact on GDP. On the other hand FDI was found to have insignificant positive effect on GDP while FL, Capital and the interaction of FDI with FD have insignificant negative effect on GDP. This study therefore recommends that government in its bid to diversify the economy should provide infrastructure and adequate financial development that will attract FDI to agricultural and agro allied industries.