An Examination of the Impact of Net Capital Inflows on the Financial Sector of the Nigerian Economy

ISIWU, George Duhu1 , Ngwu Jerome Chukwuemeka2 , CHUKWU, Sancho N. 3 and OJIYA, Emmanuel Ameh4 1,2 Lecturers, Department of Economics, Enugu State University of Science and Technology (ESUT), Enugu State, Nigeria 3,4 Lecturer, Department of Economics, Federal University Wukari, Taraba State, Nigeria 

ABSTRACT: 

This study investigated the impact of net capital inflows on financial sector of the Nigerian economy between 1986 to 2015. Annual secondary time series data obtained from the database of World Bank Development Indicators (WBDI) were employed with a VAR econometric approach for the study. Empirical results emanating from this work revealed the presence of a unique long run relationship among the variables specified in the model. The adjustment parameter was significant and appropriately signed. This shows that economic growth and other key macroeconomic variables in Nigeria adjusts fairly, though sluggishly to financial sector development within the period referenced. Evidence from granger causality testing showed that foreign capital and credit (loanable funds) made available to the private sector by the financial sector contributes significantly to the growth of the Nigerian economy and vice-versa during the period under reference. The study thus concluded that net inflows have a significant impact on broad money supply (M2) to the financial sector in Nigeria. Notwithstanding the above laudable results, the Nigerian government is advised to take more seriously the responsibility of creating an enabling environment for effective, value–adding foreign direct investment, particularly in the banking sector, without losing the prerogative of sovereignty. What this mean is that government should step up efforts in attracting foreign direct investment into the sector by ensuring that investors confidence is protected. Government should evolve an investment friendly interest rate regime supportive of the growth objective of the government. A lower cost of borrowing would induce the desire for credit expansion thereby encouraging investment activities in the country.

 KEYWORDS:

Net inflows, Financial Sector; Economic Growth; Causality; VAR 

More Details:

http://airccse.com/ijhas/papers/3118ijhas03.pdf