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CAPITAL INFLOWS, FINANCIAL DEEPENING AND ECONOMIC GROWTH NEXUS: THE MISSING LINK

Amassoma Ditimi () and Azeez Oluwatobiloba ()
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Amassoma Ditimi: Federal University Oye-Ekiti, Department of Economics, Ekiti State, Nigeria
Azeez Oluwatobiloba: Federal University Oye-Ekiti, Ekiti State, Nigeria

Economic Review: Journal of Economics and Business, 2020, vol. 18, issue 1, 61-73

Abstract: The purpose of this study was to investigate direct effects of capital inflow, financial deepening on economic growth in Nigeria due to diverse contentions it stirred among researchers from 1981 to 2018 using the Autoregressive Distributive Lag (ARDL) co-integration approach. The findings from the study showed the existence of a long-run relationship between foreign capital inflows and economic growth in Nigeria. Furthermore, the ARDL regression estimate results pointed that foreign direct investment (FDI), foreign aids (FA) and financial development (FD) have a positive and significant impact on economic growth, while on the contrary, remittances exerted a negative and insignificant relationship on economic growth. Also inflation and exchange rate results showcased a negative impact on economic growth. Based on the findings of this study, we conclude that capital in-flows (FDI, & FA) positively impact the Nigerian economy both in the short run and long run within the study period via sound financial deepening, thus concluding that capital inflows are a potential driver of economic growth in Nigeria. Consequently, the study recommends that the central bank should employ a more restrictive monetary policy to suppress the adverse effect that could emanate from inflationary pressure which can distort proper channeling of capital inflows into the country.

Keywords: Capital inflows; economic growth; ARDL model; Nigeria; bounds co-integration test (search for similar items in EconPapers)
JEL-codes: C22 O47 C51 P33 O55 (search for similar items in EconPapers)
Date: 2020
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