FINANCE OF ECONOMIC DEVELOPMENT IN NIGERIA: DOES FOREIGN CAPITAL INFLOWS COMPLEMENT DOMESTIC SAVINGS?
Abstract
This study examines the interactive effects of domestic savings and foreign capital inflows on economic development in Nigeria. It investigates the dynamic linkage between economic development variables and the interaction of domestic savings and foreign capital inflows into the country. Annual data on savings, investment, export, import, gross domestic product growth rate and other variables for computation of an index for measuring human development in Nigeria between 1981 and 2021 are sourced from the Central Bank of Nigeria statistical bulletin (2022), World Bank Development Indicators (2020) and Human Development Report (2022). Technique of autoregressive distributive lag is used to determine the dynamic relationship among these variables in Nigeria. The results of the interactive models show that official development assistance complements domestic savings to have positive effect on gross domestic product growth rate but foreign direct investment crowds out domestic saving’s positive effect on gross domestic product growth. However, foreign direct investment is found to complement domestic savings in its positive effect on index for human development in Nigeria. The study recommends that more official development assistance and foreign direct investment should be attracted into the country to complement domestic savings in its positive effects on gross domestic product growth rate and index for human development respectively in Nigeria. However, in the case of official development assistance, government should monitor its disbursement. It should not be used for consumption purpose, efforts should be intensified to ensure that corruption and embezzlement are curbed and to ensure its judicious use.
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