The Role of Internatinal Capital Flow in Economic Diversification in Nigeria
Abstract
This research examines the influence of international capital flows on economic diversification in Nigeria from 1981 to 2023. Adopting an ex post facto research design, the study relies on secondary data and applies the Autoregressive Distributed Lag (ARDL) model to assess both the short-term and long-term effects of foreign direct investment (FDI), foreign portfolio investment (FPI), remittances (RMT), and official development assistance (ODA) on real gross domestic product (RGDP). Findings from the ARDL Long Run Regression reveal significant relationships among several international capital movement variables. Notably, FDI exhibits a negative and statistically significant effect on RGDP, implying that FDI inflows may not effectively drive economic growth in Nigeria, possibly due to capital repatriation or a mismatch with key economic sectors. In contrast, FPI has a positive and significant effect on RGDP, suggesting that short-term portfolio investments contribute positively to economic expansion. Similarly, ODA demonstrates a positive and significant relationship with RGDP, reinforcing the role of foreign aid in stimulating growth. However, RMT does not show statistical significance, indicating that remittances may have a limited impact on economic growth. Based on these outcomes, it is suggested that Nigeria strengthen its investment framework by channeling FDI into productive sectors to enhance growth. Furthermore, policies aimed at ensuring the stability of foreign portfolio investments and optimizing the utilization of foreign aid resources could support economic expansion. This study highlights the importance of different forms of international capital in advancing Nigeria’s economic growth.
Keywords
Full Text:
PDFReferences
Adams, S., & Klobodu, E. K. M. (2018). Capital flows and economic growth revisited: Evidence from five sub-Saharan African countries. International Review of Applied Economics, 32(5), 620-640.
Adeniran, T., & Yusuf, O. (2023). Foreign direct investment and economic diversification in Nigeria. African Journal of Economic Policy, 30(4), 105-120.
Agenor, P. R., & Montiel, P. J. (1999). Development macroeconomics (2nd ed.). Princeton University Press.
Ajayi, T., & Yusuf, O. (2023). Economic diversification in Nigeria: Challenges and opportunities. Journal of Development Economics, 45(2), 101-120.
Al-Smadi, A. (2018). Determinants of foreign portfolio investment: The case of Jordan. Investment Management and Financial Innovations, 15(1), 328-336.
Asafo, S. S., Matuka, A., & Nyendu, D. (2019). External debt and economic growth: Two-step system GMM evidence for sub-Saharan Africa countries. International Journal of Business, Economics and Management, 6(1), 39-48.
Auty, R. (2021). Resource curse and economic transformation in Africa. Oxford University Press.
Bacha, E. L. (1990). A three-gap model of foreign transfers and the GDP growth rate in developing countries. Journal of Development Economics, 32, 279-296.
Bergen, T. V. (2017). 6 factors that influence exchange rates. Investopedia. http://www.investopedia.com/article/basics/04/050701.asp
Calvo, G. A., Leiderman, L., & Reinhart, C. M. (1993). Capital inflows and real exchange rate appreciation in Latin America. IMF Staff Papers, 40(1), 108-151.
Calvo, G. A., Leiderman, L., & Reinhart, C. M. (1996). Inflows of capital to developing countries in the 1990s. Journal of Economic Perspectives, 10, 123-139.
Canuto, W. (2003). Balance of payments: Nigerian experience, 1960-2002. British Journal of Economics, Management and Trade, 7(4), 296-305.
Central Bank of Nigeria (CBN). (2023). Annual statistical bulletin. Central Bank of Nigeria Publications.
Chigbu, E. E., Ubah, C. P., & Chigbu, U. S. (2015). Impact of capital inflows on economic growth of developing countries. International Journal of Management Science and Business Administration, 1(7), 7-21.
Darku, T. (2013). An econometric evaluation of exchange rate and external sector performance in Nigeria (1975-2005). The Nigerian Academic Forum, 13(2), 75-82.
Ebhotemhen, W., & Umoru, D. (2019). External debt and agricultural production in Nigeria. SRIWIJAYA International Journal of Dynamic Economics and Business, 3(1), 1-14.
Eroni, B. (2020). An empirical analysis of the impact of official development assistance (ODA) on economic growth: Evidence from Fiji.
Eze, I., & Okonkwo, P. (2022). Resilience of diversified economies during global crises. Global Economic Review, 18(1), 56-73.
Ezeanyeji, C. I., & Maureen, I. (2019). Foreign portfolio investment on economic growth of Nigeria: An impact analysis. International Journal of Academic Management Science Research, 3(3), 24-36.
Fambon, S. (2013). Foreign capital inflow and economic growth in Cameroon (WIDER Working Paper No. 2013/124).
Friday, O. A. (2019). Remittance and economic growth nexus in Nigeria: Does financial sector development play a critical role? International Journal of Management, Economics and Social Sciences, 8(2), 116-135.
Gabriel, A. A., Paschal, I. P. O., Chinedu, C. O., & Josaphat, U. J. O. (2020). Impact of foreign capital inflow on economic growth in ECOWAS sub-region. International Journal of Academic Research in Accounting, Finance and Management Sciences, 1(10).
IMF. (2023). Global capital flow trends and implications for emerging markets. International Monetary Fund.
Issoufou, O. (2021). Remittance and economic growth in Niger: An error correction mechanism approach. Journal of Social and Economic Statistics, 10(1-2), 1-2.
León, J. M. G., Murillo, J. W. R., & Hernández, E. A. R. (2019). Public debt and stability in economic growth: Evidence for Latin America. International Journal of Economics and Financial Issues, 9(4), 137-147.
Lipovina-Božoviæ, M., & Ivanovic, M. (2018). Capital flows in Montenegro: SVAR model. Journal of International Economies, 36(2), 647-675.
Maitra, B. (2019). Macroeconomic impact of public debt and foreign aid in Sri Lanka. Journal of Policy Modeling, 41(2), 372-394.
Mazheri, M. A., & Dahalan, J. (2019). Effect of external debt, interest payments and export earnings on economic growth in Pakistan. International Research Journal of Marketing & Economics, 6(3), 16-31.
Mensah, S., & Adebayo, T. (2022). The impact of foreign direct investment on non-oil sectors in Nigeria. African Journal of Economic Development, 12(3), 45-61.
Mohanty, R. K., & Panda, S. (2019). How does public debt affect the Indian macro-economy? A structural VAR approach (Working Paper No. 245).
Mothibi, L., & Mncayi, P. (2019). Investigating the key drivers of government debt in South Africa: A post-apartheid analysis. International Journal of eBusiness and eGovernment Studies, 2(1), 16-33.
Okeke, J., Uzo, P., & Alade, B. (2022). The role of foreign investment in promoting economic diversification in Nigeria. Journal of Development Studies, 58(3), 475-495.
Sami, A. K., & Mbah, S. A. (2018). External debt and economic growth: The case of emerging economy. Journal of Economic Integration, 33(1), 1141-1157.
Saungweme, T., & Odhiambo, N. (2019). Impact of public debt on economic growth: A review of contemporary literature. The Review of Black Political Economy, 45(4).
Seher, G. T., & Taner, S. (2019). Is there a threshold effect of public debt on economic growth? Advances in Finance, Accounting, and Economics.
Shkolnyk, I., & Koilo, V. (2018). The relationship between external debt and economic growth: Empirical evidence from Ukraine and other emerging economies. Investment Management and Financial Innovations, 15(1), 387-400.
Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65-94.
Taylor, L. (1990). A three-gap model. In F. D. McCarthy (Ed.), Problems of developing countries in the 1990s (pp. 55-90). World Bank.
Tellez-Leon, I., & Ibarra, R. (2019). Are all types of capital flows driven by the same factors? Evidence from Mexico. Empirical Economics. https://doi.org/10.1007/s00181-019-01624-5
Thirlwall, A. P. (1979). Keynes, economic development and the developing countries. In A. P. Thirlwall (Ed.), Keynes and economic development (pp. 1-20). Macmillan.
UNCTAD. (2023). Economic diversification and sustainable development: A global perspective. United Nations Publications.
World Bank. (2023). Capital flows and economic transformation in Africa: Challenges and opportunities. World Bank Publications.
World Bank. (2023). Nigeria economic update: Leveraging international capital for diversification. World Bank Publications.
Yoshino, N., Kaji, S., & Asonuma, T. (2019). Comparison of static and dynamic analyses on exchange rate regimes in East Asia. ADBI Working Paper Series, No. 532. Asian Development Bank Institute.
DOI: http://dx.doi.org/10.3968/13754
Refbacks
- There are currently no refbacks.
Copyright (c) 2025 Higher Education of Social Science

This work is licensed under a Creative Commons Attribution 4.0 International License.
Please send your manuscripts to hess@cscanada.net,or hess@cscanada.org for consideration. We look forward to receiving your work.
Articles published in Higher Education of Social Science are licensed under Creative Commons Attribution 4.0 (CC-BY).
HIGHER EDUCATION OF SOCIAL SCIENCE Editorial Office
Address: 1055 Rue Lucien-L'Allier, Unit #772, Montreal, QC H3G 3C4, Canada.
Telephone: 1-514-558 6138
Website: Http://www.cscanada.net Http://www.cscanada.org
E-mail: caooc@hotmail.com; office@cscanada.net
Copyright © 2010 Canadian Research & Development Center of Sciences and Cultures