An empirical analysis of the impacts of external capital inflows and world oil price on africa's 'largest' market

Abstract

There is a continued debate that external financial resources complement the limited domestic funds for growth, especially in developing countries, while others are of the view that external finances mostly impede economic growth and development. This article is an attempt to analyze the inflows of some external financial capital such as FDI, external debt, migrants’ remittances and ODA, along with world oil price on economic growth (captured by real GDP) in Nigeria. In order to capture both the short run and the long run effects of the variables on the economy, an econometric technique, Nerlove’s Partial Adjustment Model (PAM) was employed using yearly data from 1981 to 2012. Our results suggest that in both the short run and long run, FDI and world oil price will boost economic growth in Nigeria. Not too surprisingly, our findings equally suggest that the relationship between world oil price and economic growth may not be linear after all and we have evidence to show that this relationship is likely concave in nature. In the same vein, further findings show that migrant remittance is likely to have an adverse effect on the nation’s real GDP, while external debt and ODA do not make any significant contribution to the nation’s real GDP. We argue that for Nigeria to fully benefit from the flows of global finances, policy makers should on an ongoing basis weigh the costs and benefits associated with foreign capital inflows to the country. As is often the case, no country can compete favorably on the world market without prudent resource management and sound investment climate. Undoubtedly, with effective and efficient utilization of external financial resources, sound monetary and fiscal policies, institutional reforms in all sectors of the economy, Nigeria can witness not only accelerated but also more inclusive growth in the present era of financial globalization. © 2015, World Scientific and Engineering Academy and Society. All rights reserved.