Economic and Financial Review


Central Bank of Nigeria


Capital flows, Macroeconomic stability, Nigeria


Capital flows into developing countries in the 1960s through the 1980s were mainly in the form of overseas development assistant (ODS) to governments as well as private capital through domestic multinational bank. Nigeria, like unit developing countries, is characterized by a low' level of domestic savings and in order to attain a desirable level of investment that would guarantee sustainable development, the economy needs some foreign sayings to bridge the savings investment gap. These savings come in the form of 'new money’ or capital inflows which are expected to provide financial capital for economic activities. Foreign participation is directed associated with investment booms which is expected to increase industrial capacity and production. The paper empirically examined the current drivers of capital inflows in Nigeria from 2003 to 2007 using high frequency data. The study employs the Johansen’s Cointegration analysis to identify the long run relationship among the variables as well as granger causality test. The results of the model and the causality tests have shown that the inflows foreign capital are influenced by the level of reserves, degree of openness or liberalization of current capital and financial accounts, two-period lag interest rate, and the depth of the financial system. These variables should be closely monitored in order to sustain the current tempo in the attraction of global capital into the Nigerian economy.

Author Bio

Englama and Oputa are Deputy Directors, Sanni, Duke and Yakub are Principal Economists, while Adesanya and Sani are Economists.

Publication Title

CBN Economic and Financial Review





Recommended Citation

Englama, A., Oputa, N. C., Sanni, G. K., Yakub, M. U., Adesanya, O., Sani, Z. (2009). Determinants of capital flows in Nigeria and challenges for macroeconomic stability. CBN Economic and Financial Review, 47(1), 27-62.



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