Foreign Inflows and Economic Development in Nigeria: An ARDL and Novel Dynamic ARDL Simulation Approach
Ufuoma Earnest Ofierohor *
International Trade and Development, University of Port Harcourt, Nigeria.
Lawrence Ohale
Department of Economics, University of Port Harcourt, Nigeria.
Emeka Nkoro
Department of Economics, University of Port Harcourt, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
Several studies have been done on foreign inflows and economic development in Nigeria using various estimation techniques, but this study examined the effect of foreign inflows on economic development in Nigeria employing ARDL approach and the Novel dynamic ARDL simulation approach. Foreign Direct Investment was captured as physical investments made by foreigners in Nigeria, while foreign portfolio investment has to do with investment in securities by foreigners. In achieving this, we x-rayed the effect of foreign direct investment, foreign portfolio investment and remittances on economic development proxy by per capita income. The study used annual data from 1986 to 2020 and obtained from World Development Indicator (WDI) and United Nations Conference on Trade and Development (UNCTAD). The method employed was the autoregressive distributed lag (ARDL) method and the novel dynamic autoregressive distributed lag (DARDL) Simulation. The latter was employed to analyze the future response of economic development to 10% shocks in the predictor variables. The cointegration result which was based on the bound test affirmed long run relationship among the variables. The ARDL results shows that foreign portfolio investment and remittances have inelastic positive and significant impact on economic development. We found evidence that shows that foreign direct investment has negative and insignificant impact on economic development in the long run. In the short run, foreign direct investment and remittances significantly improve economic development. The dynamic ARDL simulations revealed that economic development responded positively to 10% negative shocks to foreign direct investment. Economic development responded in the same direction to 10% positive and negative shocks to foreign portfolio investment and remittances. We therefore recommend a cut in the cost of sending remittances through fostering greater competition between money transfer operators (MTOs) and providing business supporting infrastructures.
Keywords: Effects of Fungicides, Economic development, Yield and Diseases of Rice, foreign direct investment, foreign portfolio investment, remittance, novel dynamic ARDL
How to Cite
Downloads
References
Giwa BA, George EO, Okodua H. Causal nexus between foreign direct investment, capital intensity, labour quality and economic growth in Nigeria. Proceedings of the 33rd international business information management association conference. IBIMA. 2019;2019:(7282-9).
Akinmulegun SO. Foreign direct investment (FDI) and standard of living in Nigeria. J Appl Fin Banking. 2012;2(3):295.
Ogunniyi MB, Igberi CO. The impact of foreign direct investment on poverty reduction in Nigeria. J Econ Sustain Dev. 2014;5(14):73-89.
Soumaré I. Does FDI improve economic development in North African countries? Appl Econ. 2015;47(51):5510-33.
Gohou G, Soumaré I. Does foreign direct investment reduce poverty in Africa and are there regional differences? World Dev. 2012;40(1):75-95.
Nguyen CH, Pham TTQ, Tran TH, Nguyen TH. The relationship between foreign capital inflows and economic growth: empirical evidence from Vietnam. J Asian Fin Econ Bus. 2021;8(11):325-32.
Available:https://doi.org/10.13106/jafeb.2021.vol8.no11.0325
Ehigiamusoe KU, Lean HH. Foreign capital inflows and economic growth in Nigeria: any nexus? J Afr Bus. 2019;20(4):455-71.
Available:https://doi.org/10.1080/15228916.2019.1581010
Tahir M, Jan AA, Shah SQA, Alam MB, Afridi MA, Tariq YB et al. Foreign inflows and economic growth in Pakistan: some new insights. J Chin Econ Foreign Trade Stud. 2020;13(3):97-113.
Available: https://doi.org/10.1108/JCEFTS-01-2020-0005
Orji OIA, Orji A, Ogbuabor JE, Nwosu EO. Disaggregated foreign capital inflows and economic growth in a developing economy: empirical evidence from Nigeria. J Empirical Stud. 2018;5(1):1-11.
Jordan S, Philips AQ. Cointegration testing and dynamic simulations of autoregressive distributed lag models. The Stata Journal. 2018;18(4):902-23.
Chenery HB, Strout AM. Foreign assistance and economic development. In: Capital movements and economic development. Palgrave Macmillan; 1966. p. 268-92.
Todaro MP, Smith SC. Economic development. Pearson Education; 2011.
Kolawole BO. Foreign assistance and economic growth in Nigeria: the two-gap model framework. Am Int J Contemp Res. 2013;3(10):153-60.
Bacha EL. A three-gap model of foreign transfers and the GDP growth rate in developing countries. J Dev Econ. 1990;32(2):279-96.
Taylor L. A three-gap analysis of foreign resource flows and developing country growth. The Rocky Road Reform Adjustment Income Distrib Growth Dev World. 1993:9-37.
Appiah-Konadu P, Junior FS, Eric A, Twerefou DK. The effect of foreign aid on economic growth in Ghana. Afr J Econ Rev. 2016;4(2):248-61.
Mowlaei M. The impact of foreign capital inflows on economic growth on selected African countries. Afr J Econ Manag Stud. 2018;9(4):523-36.
Available:https://doi.org/10.1108/AJEMS-01-2018-0021
Rjoub H, Aga M, Oppong C, Sunju N, Fofack A. The impact of FDI inflows on economic growth: evidence from landlocked countries in sub-Saharan Africa. Bilig Turk DunyasI Sosyal Bilimler Derg. 2017;10(1):153-68.
Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analysis of level relationships. J Appl Econ. 2001; 16(3):289-326.
Danish R, Ulucak R. Linking biomass energy and CO2 emissions in China using dynamic autoregressive-distributed lag simulations. J Cleaner Prod. 2020;250:119533.
Abbasi KR, Shahbaz M, Jiao Z, Tufail M. How energy consumption, industrial growth, urbanization, and CO2 emissions affect economic growth in Pakistan? A novel dynamic ARDL simulations approach. Energy. 2021;221:119793.
Phillips PCB, Perron P. Testing for a unit root in time series regression. Biometrika. 1988;75(2):335-46.
Kwiatkowski D, Phillips PCB, Schmidt P, Shin Y. Testing the null hypothesis of stationarity against the alternative of a unit root. J Econ. 1992;54(1-3):159-78.
Monogbe GT, Okereke JE, Ifionu PE. An empirical investigation on foreign capital inflows and economic development in Nigeria. Asian J Econ Bus Acc. 2020:63-76.
Orji OIA, Orji A, Ogbuabor JE, Nwosu EO. Disaggregated foreign capital inflows and economic growth in a developing economy: empirical evidence from nigeria. J Empirical Stud. 2018;5(1):1-11.
Azam M. Does governance and foreign capital inflows affect economic development in OIC countries. J Econ Coop Dev. 2016;37(4):21-50.
Engle RF, Granger CWJ. Co-integration and error correction: representation, estimation, and testing. Econometrica. 1987;55(2):251-76.
Narayan P. Reformulating critical values for the bounds F-statistics approach to cointegration: an application to the tourism demand model for Fiji. Vol. 2(04). Australia: Monash University; 2004.
Johnny N, Timipere ET, Krokeme O, Markjackson D. Impact of foreign direct investment on unemployment rate in Nigeria (1980-2015). Int J Acad Res Bus Soc Sci. 2018;8(3):57-69.
Aladelusi KB, Olayiwola HO. Foreign direct investment and employment creation in Nigeria. Can Soc Sci. 2021;17(1):16-24.
Adams S, Klobodu EKM. Capital flows and economic growth revisited: evidence from five Sub-Saharan African countries. Int Rev Appl Econ. 2018;32(5):620-40.
Gabriel BT, John O, Baryl IO. Capital flows and economic growth in Nigeria: an econometric approach. Int J Res Granthaalayah. 2019;7(9):183-99.
Adekunle W, Sulaimon M. A Re-examination of the relationship between Foreign capital flows and Economic growth in Nigeria. J Econ Sustain Dev. 2018;9(9):33-48.
Jawaid ST, Saleem SM. Foreign capital inflows and economic growth of Pakistan. J Transnat Manag. 2017;22(2):121-49.
Available:https://doi.org/10.1080/15475778.2017.1302784
Khan MK, Teng JZ, Khan MI. Effect of energy consumption and economic growth on carbon dioxide emissions in Pakistan with dynamic ARDL simulations approach. Environ Sci Pollut Res Int. 2019;26(23):23480-90.
Abouelfarag HA, Abed MS. The impact of foreign capital inflows on economic growth and employment in Egypt. J Econ Admin Sci. 2019;36(3):258-76.
Available:https://doi.org/10.1108/JEAS-12-2018-0138
Chorn S, Siek D. The impact of foreign capital inflow on economic growth in developing countries. J Fin Econ. 2017;5(3):128-35.
Dickey DA, Fuller WA. Distribution of the estimators for autoregressive time series with a unit root. J Am Stat Assoc. 1979;74(366a):427-31.
Liang C, Shah SA, Bifei T. The role of FDI inflow in economic growth: evidence from developing countries. JAREAS. 2021;2(1):68-80.
Available:https://doi.org/10.47631/jareas.v2i1.212
Reza SM, Fan H, Reza T, Wang B. The impact of foreign direct investment inflows on economic growth: evidence from Bangladesh. J Bus Retail Manag Res. 2018;12(2).
Tahir M, Estrada MAR, Afridi MA. Foreign inflows and economic growth: an emiprical study of the SAARC region. Econ Syst. 2019;43(3-4):100702.