ABSTRACT
This study examines the impact of foreign capital inflows on economic development in Nigeria, focusing on Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), Remittances (REM), and Official Development Assistance (ODA). Using Real Gross Domestic Product (RGDP) as a proxy for economic development, the study employs correlation analysis, cointegration tests, and regression analysis to assess both short-term and long-term relationships between foreign capital inflows, macroeconomic factors (Inflation (INF) and Exchange Rate (EXR)), and economic growth. The findings reveal that ODA has a significant positive impact on economic growth, indicating that foreign aid plays a crucial role in Nigeria’s economic development. However, FDI and REM do not exhibit statistically significant effects, suggesting inefficiencies in capital utilization and possible misallocation of remittance inflows toward consumption rather than investment. FPI shows a weak but positive relationship with economic growth, implying that while short-term foreign investments contribute to development, they remain volatile and susceptible to market instability. Inflation does not have a significant impact on economic growth, while the exchange rate has a weak but positive influence, highlighting the importance of currency stability in fostering economic expansion. The cointegration analysis confirms a long-run relationship between foreign capital inflows and economic growth, emphasizing the need for sustainable investment policies. Based on these findings, the study recommends improving governance in ODA utilization, encouraging productive investment of remittances, enhancing the business environment for FDI, stabilizing the exchange rate, and strengthening financial market regulations to reduce capital flight. The study contributes to existing literature by providing empirical evidence on the effectiveness of foreign capital inflows in Nigeria, while also highlighting the need for policy adjustments to maximize their economic impact.
