Trade, Capital Flow and Economic Growth in Nigeria
Keywords:
Capital flow, aggregate production function, trade openness
Abstract
This study investigated the relationship and role of capital flight, especially FDI and aid, in contributing to trade expansion and economic growth in Nigeria through the implementation of the general aggregate production function (APF) using annual data set covering 1980–2015. Autoregressive distribution lag (ARDL) cointegrating approach was used to test the link between capital flow and trade, while the static OLS estimation was used to determine the role played by the variables in relation to economic growth. It was found that foreign direct investment exhibited a negative relationship, while trade openness, capital stock measured by gross fixed capital formation over GDP and growth rate of labour force had a positive relationship. Thus, 1% increase in FDI led to a reduction in economic growth by 11.14%, while 1% increase in capital stock, labour growth rate and trade openness resulted in 18.11%, 70.11% and 93.11% increases respectively in economic growth. Also, there was long-run cointegrating relationship among the variables of interest from the general aggregate production function. In addition, it was a unidirectional causality from all the independent variables to the economic growth. However, the correction term showed an equilibrium correction estimate of -0.2063 (20.63%) which was fairly high speed adjustment to equilibrium after the shocks. It was recommended that government should improve its business environment by making it more attractive to multinational and domestic investors for prompt competition, to stimulate economic growth in the long run.
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Uwatt, B.U. (2004). Globalization and economic growth: The African experience. In: Globalization and Africa’s Economic Development. Ibadan: Nigerian Economic Society, 129-158.
Wacziarg, R. (2001). Measuring the dynamic gains from trade. World Bank Economic Review ,15: 393–429.
Williamson, O.E. (1975). Markets and Hierarchies: Analysis and Antitrust Implications . New York: The Free Press.
Xu, B. (2000). Multinational enterprises, technology diffusion and host country productivity growth. Journal of Development Economics, 62: 477-93.
Akanyo, B.A. and Ajie, H.A (2015). Impact of capital flows on the Nigerian economy in a liberalized environment, International Journal of Business and Finance Management Research, 3:6-18.
Akinlo, E.A. (2003). Globalization, international investment and stock market growth in sub-Saharan Africa. Visiting Research Fellow Monograph Series, No.382. Institute of Developing Economies, Japan.
Alege, P.O. and Ogun, T.P. (2005). Exploring the globalization -industrialization nexus for economic development: A case of Nigeria. Proceedings of the 2004 Annual Conference of Nigerian Economic Society. Ibadan; NES. 245-274.
Aryeetey, E. (2005). Globalization, employment and poverty in Ghana. WIDER Thinking Ahead: The future of development economics. Marina Congress Center, Helsinki, 17-18.
Asiedu, E. (2002). On the determinants of foreign direct investment to developing countries. Is Africa different? World Development, 30(1): 107-19.
Ayanwale, A.B. (2007). FDI and economic growth: Evidence from Nigeria. African Economic Research Consortium (AERC), Nairobi, Kenya. AERC Research Paper No.165.
Barro, R.J. and Sala-I-Martin, X. (1995). Capital mobility in neoclassical models of growth. American Economic Review , 85:103-115.
Barro, R.J. (1991). Economic growth in cross section of countries. Quarterly Journal of Economics, 106: 407-444.
Bannerjee, A., Dolado J. and Mestre R. (1998). Error correction mechanism tests for cointegration in the single equation framework. Journal of Time Series Analysis,
19: 267-283.
Bhagwati J.N. (1985). Investing Abroad; Esmee Fairbain Lecture, Lancaster University. Reprinted in V.N. Balasubramanyam (ed) J N Bhagwati, Writings on International Economics (1997, Delhi, Oxford University Press).
Balasubramanyam, V.N., Salisu M.A. and Sapsford D. (1996). Foreign direct investment and growth in EP and IS countries. The Economic Journal, 106: 92-105.
Borensztein E., De Gregorio J. and Lee J.W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45:115-
135.
Coase, R.H. (1937). Nature of the firm. Econometrica. 4: 386-405.
De Mello, L.R., Jr. (1999). Foreign direct investment-led growth evidence from time series and panel data. Oxford Economics Papers, 51: 133-151.
Edwards, S. (1992). Trade orientation, distortions and growth in developing countries. Journal of Development Economies, 39: 31-57.
Ehimare O.A. (2011). Foreign direct investment and its effect the Nigerian economy. Business Intelligence Journal, 4(2):253-261
Feder, G. (1983). On exports and economic growth. Journal of Development Economics, 12: 59-73.
Fosu, A.K. (1990). Export composition and the impact of exports on economic growth of developing economies. Economic Letters, 34: 67-71.
Herzer, D., Nowak-Lehmann D.F. and Siliverstovs B. (2006). Export-led growth in Chile: Assessing the role of export composition in productivity growth. The Developing Economies, 44(3).
Granger, C.W.J. and Newbold, P. (1974). Spurious regressions in econometrics. Journal of Econometrics, 2:111-120.
Granger, C.W.J. (1986). Development in the study of cointegration economic variable. Oxford Bulletin of Economics and Statistics, 48:213-228.
Ghali, K.H. and Al-Mutawa, A. (1999). The intertemporal causal dynamics between fixed capital formation and economic growth in the group of seven countries.
International Economic Journal, 13(2): 31-37.
Gries, T., Kraft M. and Meierrieks D. (2009). Linkages between financial deepening, trade openness and economic development: Causality evidence from sub-Saharan Africa. World Development, 37(12): 1849-1860.
Grossman, G. and Helpman, E. (1991). Innovation and Growth in the Global Economy. Cambridge; MIT Press.
Harris, R. and Sollis, R. (2003). Applied Time Series Modelling and Forecasting . Wiley; West Sussex.
Hassen, S. and Anis, O. (2012). Foreign direct investment and economic growth: An approach in terms of cointegration for the case of Tunisia. J. Appl. Financ. Bank., 2(4): 193-207.
Johansen, S. and Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration – with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2):169-210.
Karbasi, A., Mahamadi E. and Ghofrani S. (2005). Impact of foreign direct investment on economic growth. Paper presented at the 12th Economic Research Forum
Conference, 19th–21st December, Egypt.
Kendrick, J.W. (1993). How much does capital explain? In: A. Szirmai, B. Van Ark and D. Pilat (eds.), Explaining Economic Growth. Essays in Honour of Angus
Maddison. Amsterdam: North Holland. 129-146.
Kormendi, R.C. and Meguire, P.G. (1985). Macroeconomic determinants of growth: Cross-country evidence. Journal of Monetary Economics, 16: 141-163.
Lipsey, R.E. (2001). Foreign direct investment and the operations of multinational firms: Concepts, history and data. Working Paper No.8665, Cambridge, MA; National Bureau of Economic Research (NBER).
Lipsey, R.E. (2000). Inward FDI and economic growth in developing countries. Transnational Corporations , 9: 61-95.
Lucas, R.E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1): 3-42.
Levine, R. and Renelt, D. (1992). A sensitivity analysis of cross-country regressions. The American Economic Review , 82(4): 942-963.
Mansouri, B. (2005). The interactive impact of FDI and trade openness on economic growth: Evidence from Morocco. 12th Economic Research Forum’s Annual
Conference, Cairo, Egypt.
Moses E.C. (2011). Oil and non-oil FDI and economic growth in Nigeria. J. Emerg. Trends in Econ. Manage. Sci. 2(4):333-343.
Narayan, P.K. (2004). Reformulating critical values for the bounds f-statistics approach to cointegration: An application to the tourism demand model for Fiji. Melbourne: Department of Economics, Monash University.
Okore, O.A. and Onoh, J.O. (2013). The impact of capital account liberalization on economic growth in Nigeria. European J. Bus. Manage, 5(34): 2222-2839.
Olaleye, S.O (2015). Impact of capital flows on economic growth in Nigeria, International Journal of Economics, Commerce and Management, 3(5):1285-1304.
Orji A. et al. (2014). Foreign capital inflows and growth: An empirical analysis of WAMZ experience. International Journal of Economics and Financial Issues,
4(4):971-983.
Paugel, A.T. (2007). International Economics. New York; McGraw-Hill Irwin. Pahlavani, M., Wilson E. and Worthington A.C. (2005). Trade-GDP nexus in Iran: An application of autoregressive distributed lag (ARDL) model. American Journal of Applied Science, 2: 1158-1165.
Pesaran, M.H., Shin Y. and Smith R.J. (2001). Bounds testing approaches to the analysis of level relationship. Journal of Applied Economics, 16: 289-326.
Sackey, F.G., Compah-Keyeke G. and Nsoah J. (2012). Foreign direct investment and economic growth in Ghana. J. Econ. Sustain. Dev. 3(10).
Saibu M.O., Nwosa I.P. and Agbeluyi A.M. (2011). Financial development, foreign direct investment and economic growth in Nigeria. J. Emerg. Trends Econ.
Manage. Sci. 2(2):146-15.
Uwatt, B.U. (2004). Globalization and economic growth: The African experience. In: Globalization and Africa’s Economic Development. Ibadan: Nigerian Economic Society, 129-158.
Wacziarg, R. (2001). Measuring the dynamic gains from trade. World Bank Economic Review ,15: 393–429.
Williamson, O.E. (1975). Markets and Hierarchies: Analysis and Antitrust Implications . New York: The Free Press.
Xu, B. (2000). Multinational enterprises, technology diffusion and host country productivity growth. Journal of Development Economics, 62: 477-93.
Published
2017-09-01
Section
Articles
