CAPITAL FLOWS AND PER CAPITA INCOME IN NIGERIA (1982 – 2022)

Abstract

This study examined the relationship between capital flows and per capita income in Nigeria from 1982 to 2022. Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), External Debt Stock (ExD) and Migrant Remittance Inflows (RMT) proxy capital flows. The objective was to provide empirical evidence to economic managers and policymakers with information on the nature of the relationships between capital flows and standard of living in Nigeria. The Autoregressive Distributed Lag model (ARDL) approach to cointegration was used to analyze the relationship and results show a long-run relationship between capital flows and per capita income. However, of the capital flows variables - FDI, FPI, and RMT - only foreign direct investment has a significant long-run coefficient, although a negative one, whilst changes in FPI and RMT had no lagged effects. The error correction model results show that around 57.99% of deviations from equilibrium were rectified per period if there was a shock to the long-run relationship. This study concludes that there is a long-run relationship between per capita income (PCY) and capital flows. It was also concluded that capital flows have a unilateral causal relationship with per capita income via the large error correction component flowing from capital flows to per capita income. As a result, the government should review its foreign direct investment and remittances inflow policies to make them contribute positively to the welfare of the citizens. More efforts should be made to attract more FPI to boost per capita income and the economy at large.