ABSTRACT
The empirical investigation examines the impact of foreign capital inflows on Nigeria’s economic growth spanning the period of 1981 to 2020. The study utilizes various economic variables, including exchange rate (EXCH), foreign aid (FA), foreign direct investment (FDI), and trade openness (TRPN), to unravel the complex relationship between these factors and economic growth. The findings reveal noteworthy insights. Firstly, while a theoretically negative relationship between the exchange rate and economic growth is observed it lacks statistical significance. This implies that exchange rate fluctuations alone may not be the primary driver of Nigeria’s economic growth, suggesting the influence of other factors, such as domestic policies and global economic conditions. Secondly, foreign aid is found to have a negative impact on economic growth although it is not statistically significant. This highlights the importance of effective utilization of foreign aid to ensure sustainable economic development, focusing on critical sectors and impactful projects. Furthermore, trade openness demonstrates a positive relationship with economic growth, aligning with expectations. However, this relationship is not statistically significant, emphasizing the need for careful monitoring and evaluation of trade-related policies. Finally, foreign direct investment, while not statistically significant in this analysis, remains a crucial driver of economic growth. Policymakers should continue efforts to attract FDI by enhancing the investment climate, infrastructure, and regulatory environment. This study underscores the nuanced nature of the impact of foreign capital inflows on Nigeria’s economic growth. It recommends policies that promote economic diversification, effective foreign aid utilization, and a trade friendly environment. Additionally, maintaining policy flexibility to adapt to changing economic conditions is essential for sustained and inclusive economic growth.
