Foreign Capital Inflows: A Panacea For Economic Development In Nigeria.

Abstract

Over the years, Nigerian economy has experienced huge but fluctuating inflow of foreign capital, but whether this has translated into development remains a question to be answered. This study therefore examined the effect of foreign capital inflows on economic development in Nigeria. The study adopted Augmented Dickey–Fuller (ADF), Bound Test and Autoregressive Distributed Lag to analyze the data sourced from Central Bank of Nigeria (2019). The results of the unit root test indicated that per capita income, foreign direct investment, exchange rate and inflation rate were integrated at I(1) while foreign portfolio investment was integrated at I(0). The ARDL Bound Test result revealed long run relationship between foreign capital inflows and economic development in Nigeria. The ARDL coefficients revealed that foreign direct investment had positive but insignificant effect on per capita income (c=0.056; p=0.17) while positive and significant relationship was established between foreign portfolio investment and per capita income (c=0.0001; p=0.01). Furthermore, the control variable, exchange rate was found to have positive but insignificant effect on per capita income (c=0.03; p=0.75) while inflation rate had negative and significant effect on per capita income (c= -0.02; p=0.053). It was revealed that foreign capital inflows did not granger cause economic development in Nigeria. It thus concluded that the inflow of foreign capital has not been able to fully stimulate economic development in Nigeria with foreign capital inflows contributing paltry to economic development. The study recommended that, easy policies tax payment and expatriation of profit should be initiated to encourage the inflow of foreign direct investment in the economy. The financial markets need to be developed and policies to reduce spiraling inflation should be put in place to encourage foreign investors.