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International Journal of Trade & Commerce-IIARTC
Impact Factor (IF):5.135 (COSMOS), IF:7.249 (ISRA), IF:3.721 (ISI)
ISSN:2277-5811 (P), ISSN:2278-9065 (O)
Frequency: Half Yearly
Capital Account Liberalization and Economic Growth in Nigeria: an Empirical Analysis, 1981-2012
This paper empirically investigates the impact of capital account liberalization on economic growth in Nigeria. The paper which covered the period between 1981 and 2012, decomposed foreign capital as indicators of financial openness to include the aggregate external financial assets and liabilities, stock of external liabilities, foreign direct and portfolio investments flows. The Cointegration technique with its implied ECM was used to estimate the causal effect of financial openness on the level of economic growth in Nigeria. The Johansen cointegration test showed a long-run relationship among the variables. The empirical results showed that the higher the degree of financial openness the greater the level of economic growth in Nigeria. Foreign capital inflows through foreign direct and portfolio investments have significantly and positively influenced the level of economic growth in Nigeria. The paper further showed that the most effective tool of financial integration has been the external financial assets and liabilities, as well as foreign capital inflows through foreign direct and portfolio investments. The obstacles to financial openness have been inconsistent monetary policies and corruption in Nigeria, which could impede efficient resource flows and allocation. The study recommends amongst others further openness and integration of the Nigerian financial system to the global economy to attract long-term capital inflow towards the productive sectors of the economy. Also, the government and financial institutions should exercise some caution in incurring external financial liabilities that have short-term tenor. Undue inflow of the more volatile short-term external liabilities could lead to the susceptibility of the economy to external financial crisis.
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Author: Boss Anthony Akanyo , Hycienth Ajie
Abstract:This paper empirically investigates the impact of capital account liberalization on economic growth in Nigeria. The paper which covered the period between 1981 and 2012, decomposed foreign capital as indicators of financial openness to include the aggregate external financial assets and liabilities, stock of external liabilities, foreign direct and portfolio investments flows. The Cointegration technique with its implied ECM was used to estimate the causal effect of financial openness on the level of economic growth in Nigeria. The Johansen cointegration test showed a long-run relationship among the variables. The empirical results showed that the higher the degree of financial openness the greater the level of economic growth in Nigeria. Foreign capital inflows through foreign direct and portfolio investments have significantly and positively influenced the level of economic growth in Nigeria. The paper further showed that the most effective tool of financial integration has been the external financial assets and liabilities, as well as foreign capital inflows through foreign direct and portfolio investments. The obstacles to financial openness have been inconsistent monetary policies and corruption in Nigeria, which could impede efficient resource flows and allocation. The study recommends amongst others further openness and integration of the Nigerian financial system to the global economy to attract long-term capital inflow towards the productive sectors of the economy. Also, the government and financial institutions should exercise some caution in incurring external financial liabilities that have short-term tenor. Undue inflow of the more volatile short-term external liabilities could lead to the susceptibility of the economy to external financial crisis.
Keywords:Financial openness, Foreign capital, Economic growth
DOI:
International Journal of Trade & Commerce (Vol: 3 Issue:2)
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