Financial Flows and Economic Growth in Nigeria

This study examines how foreign direct investment (FDI), remittances (REM), and official development assistance (ODA) affect Nigeria’s economic growth (GDP) from 1981 to 2022. Using annual data from the Central Bank of Nigeria and the World Bank, we conduct unit-root and Johansen cointegration tests and estimate a Vector Error Correction Model (VECM). We further assess inflation as a moderating variable on the flows–growth nexus. The results show: (i) FDI has an insignificant short-run effect but a positive and significant long-run association with GDP; (ii) ODA yields near-term gains with a delayed positive effect, yet relates negatively to growth in the long run; (iii) remittances have delayed short-run benefits but lack strong long-run structural impact; and (iv) inflation dampens growth in the short run, with limited evidence of long-run pro-growth effects. Policy should prioritize patient, stability-oriented FDI reforms, tighten governance and project selection for ODA, lower remittance costs and steer them toward productive uses, and manage inflation to avoid eroding short-run growth.

economic growth; financial flows; FDI; ODA; remittances; inflation; Nigeria; VECM

1. Carp, L. (2014). Financial globalization and capital flows volatility effects on economic growth. Procedia Economics and Finance,15, 350–356. [Google Scholar] [Crossref]

2. Encinas-Ferrer, C. and Villegas-Zermeño, E. (2015). Foreign direct investment and gross domestic product growth, Procedia Economics and Finance,24,198 – 207 [Google Scholar] [Crossref]

3. Essien, S.N., Agboegbulem, N.T.I., Mba, M.K., Onumonu, O.G. (2016). An empirical analysis of the macroeconomic impact of public debt in Nigeria. CBN Journal ofApplied Statistics, 7 (1), 125-145. [Google Scholar] [Crossref]

4. Gabriel, B.T., John, O., Baryl, I.O. (2019). Capital flows and economic growth in Nigeria: An econometric approach. International Journal of Research, 7(9), 183-199. [Google Scholar] [Crossref]

5. Kaphle, R.R. (2018). Relationship between remittance and economic growth in Nepal. Tribhuvan University Journal, 32(2), 249-266. [Google Scholar] [Crossref]

6. Mamvuraa, K., Sibandab, M., and Rajaramc, R. (2020). Causal dynamics among Foreign portfolio investment volatility, financial deepening and capital markets in low income countries. SPOUDAI Journal of Economics and Business, 70 (1-2), 20-38. [Google Scholar] [Crossref]

7. Nwosa, P.I., Ugwu, E.I., and Ehinomen, C. (2020). Volatility in foreign capital inflows and economic growth in Nigeria. Euroeconomica, 39(1), 98-112. [Google Scholar] [Crossref]

8. Ogbechie, C. and Anetor, F. O. (2016). Dynamic interaction between capital flows, exchange rates and growth: evidence from Nigeria, Journal of Economics and Trade, 1(1), 11-27. [Google Scholar] [Crossref]

9. Ogbonnaya, A.K., and Ogechuckwu, O.S. (2017). Impact of illicit financial flow on economic growth and development: Evidence from Nigeria. International Journal of Innovation and Economic Development, 3(4), 19-33 [Google Scholar] [Crossref]

10. Okwuchukwu,O., and Onyele, K.O. (2021). Financial development and cross-border financial flows to Nigeria. Journal of Banking, 9(1), 1-40. [Google Scholar] [Crossref]

11. Olakojo, S.A. (2017), Foreign trade and international financial flows: Implications for economic stability in ECOWAS countries, Working Paper Series No. 251, African Development Bank, Abidjan, Côte d’Ivoire. [Google Scholar] [Crossref]

12. Onwuteaka, C.L., Echekoba, F.N., Amakor, I.C., and Ananwude, A.C. (2023) International capital inflows and economic development of Nigeria (1986 – 2021). African Banking and Finance Review-Journal (ABFRJ) International Open Access Journal, 2 (2), 81-102. [Google Scholar] [Crossref]

13. Perekunah, B.E. and Oziegbe, T.R. (2016). Official development assistance, volatility and per capita real GDP growth in sub-Saharan African countries. The Journal of Developing Areas 50(4), 363-382. [Google Scholar] [Crossref]

14. Thung,L.T., Ly,P.T.M., Nhu, P.T.Q., Thanh, P.T., Hna, L.T., Phung, T.T.P (2015). Theimpact of remittance inflows on Inflation: Evidence in Asian and the Pacific developing countries, Journal of Applied Economic Sciences. Retrieved from https://www.researchgate.net/publication/297360908 on April 10, 2024. [Google Scholar] [Crossref]

15. Williams, H.T., and Titilayo, A.A. (2018). The impact of capital flows on financial system stability in Nigeria. African Journal of Accounting and Financial Research,1 (1), 1-8. [Google Scholar] [Crossref]

16. Adegbite, E. O., & Adetiloye, K. A. (2013). Financial development and economic growth in Nigeria, Mediterranean Journal of Social Sciences, 4(6), 213 -221. [Google Scholar] [Crossref]

17. Akinlo, A. E. (2004). FDI and growth in Nigeria: An empirical investigation, Journal of Policy Modeling, 26(5), 627-639. [Google Scholar] [Crossref]

18. Central Bank of Nigeria (2020). Annual Economic Report. [Google Scholar] [Crossref]

19. World Bank (2021). Migration and Remittances Data [Google Scholar] [Crossref]

20. NBS (2023). National Bureau of Statistics Report on Inflation and GDP. [Google Scholar] [Crossref]

21. OECD (2021). Official Development Assistance to Nigeria. [Google Scholar] [Crossref]

• Impact of Foreign Direct Investment in India
• Issues Involved in Digitalisation Special Reference to Indian Tourism Growth
• Relationship Marketing and Customer Loyalty in the Fast-Moving Consumer Goods (FMCG) Industry in Nairobi County
• Financial Literacy or Financial Inclusion? Which is Which, What is What—To Achieve Uganda’s 10-Fold Economic Growth By 2040
• Harnessing Natural Gas for Economic Transformation: Overcoming the Regulatory and Infrastructural Bottlenecks in Nigeria