RE-EXAMINING FOREIGN CAPITAL INFLOWS AND ECONOMIC GROWTH NEXUS IN NIGERIA: THE ARDL-ECM APPROCH

RE-EXAMINING FOREIGN
CAPITAL INFLOWS AND
ECONOMIC GROWTH NEXUS IN
NIGERIA: THE ARDL-ECM
APPROCH
Nnenna G. Nwonye
Department of Banking and Finance,
University of Nigeria, Enugu Campus
nnenna.nwonye@unn.edu.ng
ABSTRACT
This study examined the effect of foreign
capital inflows on output growth in
Nigeria for the period 1986 to 2018. In this
study, foreign capital inflows were proxied by
Foreign Direct Investment, Foreign Portfolio
investment, overseas development assistance,
migrants’ home remittances and trade and
suppliers’ credit; trade (economic) openness
and level of capital market development were
built in the model as check variables of the
dependent variable. Economic growth was
proxied by real gross domestic product. The
study employed annual data obtained from
Central Bank of Nigeria statistical Bulletin,
World Bank database and Mundi Index. The
Autoregressive Distributed Lag (ARDL)-Error
Accounting and Finance Research Association
correction method approach was used to
empirically test the long run and short run
relationships and dynamic interactions of the
dependent and independent variables.The
long-run result of the study revealed that
foreign direct investment (FDI), overseas
development assistance (ODA), trade and
suppliers credit (TSCR), and economic
openness (OPN) positively impacted on real
gross domestic product (RGDP), thereby
conforming to a priori expectations, however,
while FDI, TSCR and OPN were statistically
significant, ODA was not statistically
significant. Furthermore, the coefficients of
FPI, MHR and LMCD for the period of this
study did not conform to a priori expectation,
as they negatively and significantly impact on
output growth in the economy at 5% level of
significant in the long run. The short run ECM
result revealed that FDI, ODA, TSCR and OPN
negatively and significantly impacted on
RGDP, while FPI and LCMD positively and
significantly impacted on RGDP. The
coefficient of the error correction term, which
measured the speed of adjustment is as
expected, significantly negative at 5%,
suggesting that the series is not explosive and
that equilibrium in the long run will be
attained. The coefficient of −0.33 revealed
that 33% of the disequilibrium in the RGDP for
the current period will be corrected in the
following year.
Keywords: Foreign capital inflow, Foreign
direct investment, Foreign portfolio
investment, Oversea development aid, auto
distributed lag (ARDL).

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