Volatility in Foreign Capital Inflows and Economic Growth in Nigeria
Keywords:Volatility; Capital flows; ARDL; Nigeria
This study examines the relationship between volatility in capital inflows and economic growth in
Nigeria for the period 1986 to 2018. Specifically, this study address to research question “does volatility in
component of capital inflows (foreign direct investment, foreign portfolio investment and other investment
flows) affect economic growth differently?” This study employs the Auto-Regressive Distributed Lag
(ARDL) method and the result of the study showed that volatility in capital inflows (measured in aggregate
or component) negatively affected economic growth (albeit volatility in foreign direct investment was
insignificant). The result of the study also shows that volatility of component of capital flows influenced
economic growth differently (in terms of significance and magnitude). The study concludes that volatility in
short term capital flows (foreign portfolio investment and other investment flows) hindered economic growth
while volatility in long term capital flows (foreign direct investment) does not. Consequently, the study
recommends the need for sound macroeconomic policy management such as effective monetary supervision
and regulation capable of ensuring financial stability in both the banking and the capital markets which will
improve investors’ confidence and reduce the volatility of capital inflows in Nigeria.
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