Trade, Capital Flow and Economic Growth in Nigeria

  • Soliu B. Adegboyega
  • Ibrahim A. Odusanya
  • Raheem O. Popoola
Keywords: Capital flow, aggregate production function, trade openness


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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