ABSTRACT
The study empirically examines the place of foreign capital in the growth process of the Nigerian economy with focus on different types of capital inflow, within a time frame of 1986 to 2017. The methods of estimation implemented in the study include; VAR estimation techniques which included the impulse response functions and the forecast error variance decomposition; VECM for determination of co-integrating relationship among the components of foreign capital flows; and Principal component estimations techniques. Predominantly, both variance decomposition and impulse response analyses were used to investigate the time-based dynamic effects of shocks to the different components of foreign capital flows namely: overseas development assistance, foreign direct investment and remittance flows on Nigeria’s macroeconomic performance. Based on the VAR and VECM methods of estimations, the study found out that two components of foreign capital inflow namely, FDI and remittances significantly and positively impacted on economic growth in Nigeria. To further corroborate, the empirical findings, the principal component analysis accounted for significant positive relationship of foreign direct investment flows, remittance flows, and overseas development assistance with economic growth performance in Nigeria. The study provides empirical evidence that indicated that foreign direct investment flows and international remittances inflows are two of the major macroeconomic factors that significantly stimulated economic growth in Nigeria within the period. The study recommends amongst others, the need for corporate sector such as banks and other financial institutions to intensify the volume of official flows by reducing transaction cost, streamlining transfer procedures and by encouraging the use of formal financial channels. Also, Nigerian foreign investment policy should be directed towards attracting and boosting more inflows of foreign capital especially remittances and foreign direct investment as against foreign portfolio investment inflows in Nigeria that do not exert significant positive influence on Nigeria’s economic growth performance. More specifically, policies to boost foreign direct investment flows and remittance inflows to Nigeria should be targeted.
Keywords: Economic growth, Remittances, Foreign direct investment, Foreign portfolio investment, Overseas development assistance
