Foreign Capital Inflow and Domestic Private Investment in Nigeria - A Disaggregated Model

Ogbonna Innocent Chukwuka
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Ogbonna Innocent Chukwuka: Department of Economics, Enugu State University of Science and Technology (ESUT), Enugu State, Nigeria

International Journal of World Policy and Development Studies, 2015, vol. 1, issue 1, 1-15

Abstract: Foreign capital inflow (KI) is arguably a vital source of external capital, especially for developing countries with low domestic savings rate.  Investigating the trend of KI into Nigeria, we observed that as a ratio of GDP it was 0.67% in 1979, 6.88% in 1989, 9.45% in 1999, and 19.31% in 2009. Thus, this study Foreign Capital Inflow and Domestic Private Investment in Nigeria � A Disaggregated Model� is intended to examine the relationship among aggregate KI and domestic private investment (DPI) on one hand, and disaggregated KI and DPI on the other in the period 1986Q1-2012Q4.  Variables such as DPI, KI, three inflow components: (foreign direct investment (FDI), portfolio investment (PFI), and remittances (REM)) and dummy are employed. The framework of Khan (2011) which expressed DPI as a function of the explanatory variables was modified and adopted. With coefficient of -0.021 and t-statistic of -0.968 for the first model, the results reveal that aggregate KI has inverse but insignificant relationship with DPI in the short and long run. When disaggregated (second model), FDI coefficient is 0.190 with t-statistic value of 3.013 indicative that the variable has significant growth-inducing impact on DPI. The coefficients of PFI and REM are -0.017 and -0.121 with t-statistic values of -1.105 and -4.887 respectively, suggestive that both have depressing impact on DPI. The joint depressing impact of PFI and REM on DPI is greater than the expansionary impact of FDI on DPI. The coefficient of dummy was found to be significantly positive in determining DPI.

Keywords: Foreign capital inflow; Foreign direct investment; Portfolio investment; Private domestic investment; Remittances. (search for similar items in EconPapers)
Date: 2015
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