Foreign Capital Inflows, International Trade, and Economic Growth in Nigeria: A Dynamic ARDL Approach

The mixed performance of the Nigerian economy despite various deliberate policies and programmes by successive governments has long been a matter of concern to all including policymakers, and academics. Different scholars attributed the mixed performance to different reasons and thus proffer varying suggestions. Those that blamed the performance on insufficient investment suggested a deliberate effort to attract more foreign capital inflow, while proponents of openness were of the view that more external trade is required to spur economic growth. Both groups contend that robust domestic investment, foreign capital inflow, and international trade have the potential to enhance economic growth. This study attempts to examine the impact of both investment inflow and international trade on economic growth in Nigeria covering the period of indirect monetary policy by the Central Bank of Nigeria from 1993Q1 to 2022Q3 using the Dynamic Autoregressive Distributed Lag approach. The study also explores the impact of the global financial crisis on the relationship by further disentangling the study period into two (“pre-GFC” and “post-GFC” eras). The study finds that while foreign capital inflows is an important determinant of economic growth in Nigeria during the study period, international trade only positively affects growth after the global financial crisis. The study recommends that the Nigerian government should make efforts to attract more foreign investments, particularly in the non-oil economy.