The Impact of Capital Inflow and Economic Growth in Nigeria
Keywords:
Capital Inflow, Economic Growth, Financial Market, Foreign Direct InvestmentAbstract
This study examined the impact of international capital inflow on economic growth in Nigeria using time series quarterly data from 1981Q1 to 2023Q4. The specific objectives of the study were to evaluate the impact of international capital inflow on economic growth, determine the direction of causality between international capital inflow and economic growth; and to determine the nature of the relationship between international capital inflow and economic growth in Nigeria. The data were sourced from the Central Bank of Nigeria and the National Bureau of Statistics, 2023. The theoretical framework of this study was the Augmented Solow-Swan version of the Neo-Classical Model because of its dynamism. The dependent variable used in the work was economic growth (GDPGR) and the independent variables were foreign direct investment (FDI), remittances (REM), exchange rate (EXR), trade openness (TOP), and gross fixed capital formation (GFCF). The techniques used by this study were the Classical Multiple Regression Model and the Autoregressive Distributed Lag (ARDL) model. The findings of the long run ARDL showed that all the variables had positive impact on economic growth except gross fixed capital formation. This indicates that an increase in FDI, REM, and EXR had individually insignificant positive impact on economic growth It was also indicated from the findings that trade openness had significant impact on economic growth in Nigeria. The result of the short run dynamic of the ARDL showed that remittances and gross fixed capital formation had negative and insignificant impact on economic growth in Nigeria. The result further indicated that Foreign Direct Investment (FDI), Exchange Rate (EXR) and Trade Openness (TOP) had positive relationship with economic growth in Nigeria. The impact of trade openness on economic growth was statistically significant within the short run and the long run. The result of the co-integration test showed a long-run relationship between international capital inflow and economic growth in Nigeria. This study also showed no evidence of direction of causality between capital inflow and economic growth. The study therefore recommended the need to consciously improve the business environment, such as insurgence, kidnapping and other related security threat to enable capital inflow contribute more to economic growth in Nigeria. The study also recommended that the government should develop Nigeria’s local financial markets for easy inflow of capital.
References
Adaramola A. O & Obisesan O. G (2015). Impact of foreign direct investment on Nigerian capital market development. International Journal of Academic in Accounting, Finance and Management Science, 5(1), 103-108
Akinlo, A. E., & Adejumo, O. O. (2016). Determinants of total factor productivity growth in Nigeria, 1970–2009. Global Business Review, 17(2), 257-270. https://doi.org/10.1177/0972150915619821
Akinlo, A. E., & Adejumo, O. O. (2016). Determinants of total factor productivity growth in Nigeria, 1970–2009. Global Business Review, 17(2), 257-270.
Alabi, B. B. (2022). The impact of foreign direct investment (FDI) on employment in Nigeria (1970-2018) Unpublished (Doctoral dissertation).
Amrevurayire, E. O., & Ojeh, V. N. (2016). Consequences of rural-urban migration
on the source region of Ughievwen clan Delta State Nigeria. European journal of geography, 7(3), 42-57.
Annisa, N., & Taher, A. R. Y. (2022). The Effect of Foreign Debt, Labor Force, and Net Exports on Indonesia's Economic Growth in 1986 Q1-2020 Q4. Journal Ekonomi & Bisnis JAGADITHA, 9(1), 39-46.
Araoye, F. E. (2021). Impact of capital market development on foreign portfolio investment in Nigeria. Journal of Accounting and Finance Research, 1(1), 70-88.
Awumbila, M., Boakye-Yiadom, L., Egger, E. M., Litchfield, J., Teye, J. K., & Yeboah, C. (2016). Gains and losses from internal migration: evidence from migrant-sending households in Ghana. Migrating out of Poverty Working Paper, (44).
Azubuike, O. I., Johnson, O. A., & Adegbite, E. O. (2018). The growth impact of SMEs in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 9(4), 234-242.
Azubuike, O. I., Johnson, O. A., & Adegbite, E. O. (2018). The growth impact of SMEs in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 9(4), 234-242.
Agunbiade, O. & Mohammed, S.S. (2018). Impact of Foreign Aid on the
Economic Development of Nigeria: 1986–2016. Journal of Economics and Sustainable Development, 9(18), 69-80.
Albert, S.M., Gbeminiyi A.T. & Olayemi, S.S. (2021). The Impact of Foreign Aid
on Socio–Economic Development in Nigeria. ASJ International Journal of Management Science (IJMS), 4(01), 60-70, 31 March, 2021.
Asaleye, A.J., Ojo, A.P. & Olagunju, O.E. (2023). Asymmetric and shock effects
of foreign AID on economic growth and employment generation. Research in Globalization, 6(5), 100-123.
Babasanya, A. O., Oseni, I. O., & Awode, S. S. (2018). Human capital development: A catalyst for achieving SDGs in Nigeria. Acta Universitatis Danubius. Oeconomica, 14(4).
Baghebo, M., & Apere, T. (2014). Foreign portfolio investment and economic growth in Nigeria (1986-2011). International Journal of Business and Social Science, 5(11), 108-115.
Ben-Nakhi, A. E., & Mahmoud, M. A. (2004). Cooling load prediction for buildings using general regression neural networks. Energy Conversion and Management, 45(13-14), 2127-2141.
Blomström, M., Kokko, A., & Globerman, S. (2001). The determinants of host country spillovers from foreign direct investment: a review and synthesis of the literature. Inward investment technological change and growth: The Impact of Multinational Corporations on the UK Economy, 34-65.
Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does a foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-135.
Chami, R., Fullenkamp, C., & Jahjah, S. (2005). Are immigrant remittance flows a source of capital for development? IMF Staff papers, 52(1), 55-81.
Chea, A. C. (2011). Global private capital flows and development finance in Sub-Saharan Africa: Exemplary performers, lessons for others, and strategies for global competitiveness in the twenty-first century. Journal of Sustainable Development, 4(5), 18-31.
Chukwuemeka, E. P., (2008). Modeling the long-run determinants of foreign portfolio investment in an emerging market: Evidence from Nigeria. International Conference on Applied Economic-ICOAE
Darkwah, S. A., & Verter, N. (2014). Determinants of international migration: The Nigerian experience. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 62(2), 321-327.
Dinkelman, T., & Mariotti, M. (2014). What are the long-run effects of labor migration on human capital? Evidence from Malawi. NBER Working Paper Series, (22049).
Duru, I.U., Okafor, B.O.N., Eze, M.A. & Ebenyi, G.O. (2020). Foreign Aid and
Economic Growth: Empirical Evidence from Nigeria. Growth Journal, 7(1), 35- 50.
El-Rasheed, S. & Abdullahi, B. M. (2022). Revisiting Foreign Direct Investment –
Economic Growth Nexus in Nigeria: An ARDL Approach. Nsukka Journal of Economics and Allied Research, 7(4), 29 - 47.
Fashina, O. A., Asaleye, A.J., Ogunjobi, J.O. & Lawal, A.I. (2018). Foreign aid,
human capital and Economic Growth Nexus: Evidence from Nigeria. Journal of International Studies, 11(2), 104-117. doi:10.14254/2071-8330.2018/11-2/8
Ekine, D. I., Ewubare, D. B., & Ajie, C. (2019). The relationship between foreign portfolio investment, foreign direct investment and economic performance of Nigerian economy:(1980-2017): An Empirical Analysis. International Journal of Business and Applied Social Science, 5(7).
Elekwa, P., Aniebo, C. & Ogu, C. (2016). Does foreign portfolio investment affect employment growth in Nigeria? Journal of Economics and Sustainable Development, www.iiste.orgISSN 2222-1700 (Paper) (7),12,9
Ezirim, B.C., (2005). Finance Dynamics Principles, Techniques & Applications. Markowitz Centre for Research & Development Port Harcourt.
Falki, N. (2009). Impact of foreign direct investment on economic growth in Pakistan. International Review of Business Research Papers, 5(5), 110-120.
Glory, C. (2020). Do Diaspora Remittances Enhance Productive Asset Purchase in Host Country? Evidence from Nigeria. Journal of Economics and Sustainable Development (2),4,6
Ibenyenwa, E. K., Ezeh, D. O., Adoms, F. U., Anaemena, H. C., Ogbonna, K., & Ezeaku, C. N. (2023). Effects of diaspora remittances on economic development: A study of Nigerian per-capita income. GPH-International Journal of Business Management, 6(08), 127-139.
Iheanachor, O. (2016). Impact of foreign portfolio investment on human capital development in Nigeria 1985- 2015: International Journal of Academic Research in Business and Social Sciences (5)7
Isiaka, N.A., & Makinde, W.A., (2020). Effect of Foreign Aids on Economic
Growth in Nigeria. Canadian Social Science, 16(10), 26-36. DOI:10.3968/11897. Countries. International Journal of Economics and Development Policy (IJEDP), 2(1), 1 – 9.
Kanu S. I, Ozurumba BA. Capital formation and economic growth in Nigeria. Global Journal of Human-Social Science: E Economics.2015; 14(4): 42-58.
Kolapo, F, O &Olaniyan, T. (2018) Unravelling the impact of macro fundamentals on stock market performances in Nigeria: An ARDL -bound testing approach. Journal of Economics, Management and Trade. 21(3), 1-15
Kosec, K., Ghebru, H., Holtemeyer, B., Mueller, V., & Schmidt, E. (2018). The effect of land access on youth employment and migration decisions: Evidence from rural Ethiopia. American Journal of Agricultural Economics, 100(3), 931-954.
Kwasi Fosu, A. (2018). Economic structure, growth, and evolution of inequality and poverty in Africa: An overview. Journal of African Economies, 27(1), 1-9.
Lyu, H., Dong, Z., Roobavannan, M., Kandasamy, J., & Pande, S. (2019). Rural unemployment pushes migrants to urban areas in Jiangsu Province, China. Palgrave Communications, 5(1), 1-12.
Mariusz-Jan, Radło & Artur F. Tomeczek (2022). Factors influencing labour
productivity in modern economies: A review and qualitative text analysis. Wseas Transactions on Environment and Development, 18, 291-314. DOI: 10.37394/232015.2022.18.30
Mohamed, M. A., & Abdul-Talib, A. N. (2020). Push-pull factors influencing international return migration intentions: a systematic literature review. Journal of Enterprising Communities: People and Places in the Global Economy, 14(2), 231-246.
Mpanju, A. (2012). The impact of foreign direct investment on employment creation in Tanzania. Zenith International Journal of Business Economics and Management Research,2(1), 126- 139.
Mbah, S. & Amassoma, D. (2014). The Linkage between Foreign Aid and
Economic Growth in Nigeria. International Journal of Economic Practices and Theories, 4(6), 1007–1017.
Nayyrazeb. (2014). FDI and unemployment reduction in Pakistan. College of Economics and Business Administration, Chongqing University, Chongqing, 400030, 10-17.
Nkalu, C. N., Edeme, R. K., Nchege, J., & Arazu, O. W. (2019). Rural-urban
population growth, economic growth and urban agglomeration in sub-Saharan Africa: What does Williamson-Kuznets hypothesis say? Journal of Asian and African Studies, 54(8), 1247-1261.
Nnubia, I.C., Egolum, P.C., John-Akamelu, C.R. & Obi, G.U. (2022). External
Borrowing, Foreign Aid and Economic Growth in Nigeria. International Journal of Entrepreneurship, 26(S2), 1-19.
Oluitan, R.O. & Dada, H.O. (2020). The Impact of Foreign Aid on the Economic
Growth of Nigeria. International Journal of Business and Management, 8(4), 203-211.
Obiwona, B. (2019). Foreign direct investment for Africa in financing proper growth. Nairobi African Economic Research Consortium, 60-95.
Oded S and Fan CS (2007) Rural-to-urban migration, human capital, and agglomeration. ZEF-Discussion Papers on Development Policy No. 118. Bonn: Center for Development Research, 25.
Ofuoku, A. U., & Chukwuji, C. O. (2007). The impact of rural-urban migration on plantation agriculture in the Niger Delta region, Nigeria. Journal of Rural Social Sciences, 27(1), 6.
Ohiorhenuan, J. F. (2011). The future of poverty and development in Africa. Foresight, 13(3), 7-23.
Okafor, C., & Chimereze, C. (2020). Brain drains among Nigerian nurses: Implications to the migrating nurse and the home country. International Journal of Research and Scientific Innovation, 7(1), 15-21.
Okonkwo, I. I., Nwaru, J. C., Anyaegbunam, H. N., & Okonkwo, G. U. (2018). Gender differentials in the efficiency of adoption of cassava production technologies among farmers in Anambra State, Nigeria: additive multiplicative dummy variable approach. Nigeria Agricultural Journal, 49(1), 181-186.
Omotayo, A. O., Ogunniyi, A. I., Tchereni, B. H., & Nkonki-Mandleni, B. (2018). Understanding the link between household poverty and food security in southwest Nigeria. The Journal of Developing Areas, 52(3), 27-38.
Osabohien, R., Awolola, O. D., Matthew, O., Itua, O. Q., & Elomien, E. (2020). Foreign direct investment inflow and employment in Nigeria. Investment management and financial innovations, 17(1), 77-84.
Osondu, O. N. (2016). Foreign portfolio investment and industrial growth in Nigeria (1986-2013). International journal of innovative finance and economics research, 4(3), 31-38.
Rajan, R. S. (2019). Revisiting monetary policy autonomy In Asia and Beyond: Trilemma, Dilemma or 2.5 lemma? Economic Policy Group Monetary Authority of Singapore, 100.
Rojík, S., Maitah, M., Malec, K. & Abdullahi, K.T. (2024). Impact of Foreign Aid on Nigerian Economy. Cogent Social Sciences, 10(1), 1-16.
Siddiqui, T., Szaboova, L., Adger, W. N., Safra de Campos, R., Bhuiyan, M. R. A., & Billah, T. (2021). Policy opportunities and constraints for addressing urban precarity of migrant populations. Global Policy, 12, 91-105.
Switek, M. (2016). Internal migration and life satisfaction: Well-being paths of young adult migrants. Social Indicators Research, 125, 191-241.
Tripathi S and Kaur H (2017) Determinants of rural to urban migration in large agglomerations in India: An empirical analysis. MPRA Paper No. 76484. Germany: University Library of Munich.
Ubi, P., & Essien, M. (2018). Remittances and economic development in Nigeria: A macroeconomic approach. International Journal of Economics, Commerce and Management, Vi (6), 105-133.
UNCTAD (2009). Investment policy review of Nigeria. New York and Geneva.
United Nations. World Bank (2012). World Development Indicators. Retrieved from http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD.
Ubi, P. & Ebi, B. (2021). Foreign Aid and the Development Process: Some Reflections on the Nigerian Experience. European Journal of Scientific Research, 159(2), 57 – 59.
Yiew, T. H. & Lau, E. (2018). Does Foreign Aid Contributes to or Impeded Economic Growth. Journal of International Studies, 11(3), 21-30.