Foreign capital inflows and growth nexus in Nigeria

Abstract

This research examined the effect of foreign capital inflows on economic performance in Nigeria between 1981 and 2020,. It used the Least Squares econometric technique to analyze data from the World Bank's time series database. The data were checked for stationarity using the Augmented Dickey Fuller technique before being submitted to further empirical testing using a system-wise Johansen Cointegration Test, an ECM, and the Granger Causality Test. The analysis discovered a negative and negligible link between FDI and GDP. The association between REM and NOA and GDP is favorable but negligible. While GDP and GCF have a positive and substantial link. The study discovered that foreign capital inflow factors such as FDI, REM, and NOA had a negligible short-run effect on economic development in Nigeria. However, if the influx is steady throughout time, they have a major effect in the long run. Additionally, the study discovered that gross capital formation has a substantial effect on economic growth in both the short and long run. As a result, the study recommended that the government encourage savings by increasing deposit interest rates in order to increase the availability of funds for domestic investment and that the government create an enabling environment for investment to thrive by providing basic amenities such as electricity, good roads, and health care, among others.