Leveraging Nigeria’s Economic Development: Foreign Capital Inflow or Financial System?
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This study empirically evaluate the schematic contribution of financial system and capital inflows to the development of the Nigeria economy and the causality nexus that exist among the elements between the periods 1981 to 2014. This study employed linear and non-linear multiple regression, unit root test, co-integration test, error correction model and granger causality test to ascertain the causality nexus. Aggregate bank credit and market capitalization rate were proxies for financial system, foreign direct investment and home remittance were proxies for capital inflows while human development index was proxy for economic development. Finding reveals that all the indicators of financial system has no significant contribution to the development of the economy but rather pest on the development of the economic. On the order hand, foreign direct investment and home remittance significantly promote economic development in the long and short run. The result of the granger causality test reveal a unilateral nexus between FDI and HDI with causality flowing from FDI to HDI. On this premises, this study then conclude that capital inflows has illuminate development process in Nigeria both in the long run and short run although its contibutive quadrant is weak while the operation of financial system is parasitic to economic development over the period under study. Hence, study recommend (i) economic, political and institutional environment should be well stabilise to encourage more inflows of foreign capital (ii) taxes and levies paid by foreign investors in the course of operations should be reviewed downward and sweetener that will encourage more inflows of capital should be upheld to enable the country enjoy better development process and finally, financial discipline and moral tolerance such be embraced in order to achieve the motive of foreign inflows and hence promote economic development in Nigeria.
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