Foreign Direct Investment, Economic Growth and Financial Sector Development in Small Open Developing Economies

The present paper examines the causal linkage between foreign direct investment(FDI) and economic growth - in Cote’ d’Ivoire, Gambia, Ghana, Nigeria and Sierra Leone – with financial development accounted for over the period 1970-2005 within a trivariate framework which applies Granger causality tests in a vector error correction(VEC) setting. Three alternative measures of financial sector development - total liquid liabilities, total banking sector credit and credit to the private sector – were employed to capture different ramifications of financial intermediation. Our results support the view that the extent of financial sophistication matters for the benefits of foreign direct investment to register on economic growth in Ghana, Gambia and Sierra Leone depending on the financial indicator used. Nigeria, on the other hand, displays no evidence of any short- or long-run causal flow from FDI to growth with financial deepening accompanying. In sum, therefore, what should be of utmost urgency is concerted efforts in most of these countries, which have typically been in the throes of economic reforms, to upgrade their financial structure to better position them to reap the desirable growth promoting effects of FDI flows.Financial development; Foreign direct investment; Vector error correction; Economic growth; Economic reforms

Monetary Policy Committee and Monetary Policy Conduct in Nigeria

The study provides an incisive but preliminary investigation into the activities of the monetary policy committee of the central bank of Nigeria and the implications for monetary policy, using the standard deviation measure of volatility and the ordinary least square method. The findings show that the ‘internal’ members and majority of the ‘external’ members have different preferences as shown in the voting patterns. Also, there has been reduction in inflation, money and stock markets volatilities since the operations of the committee became more visible. Furthermore, there is no structural break in both the money and stock markets in the period when the central bank started releasing the personal statements and voting pattern of the committee members. The policy implication of these results is that the transparency with which the monetary policy committee has operated since 2011 has boosted policy credibility due to the reduction in markets volatility. Nevertheless, there is need for the individual committee members to be more visible to the public through different platforms as this will further improve the central bank’s communications strategy. Keywords: Monetary policy committee decisions, voting, volatility JEL Classification: D71, D78, E5

Non-linear Relation between External Debt and Economic Growth in Nigeria: Does the Investment Channel Matter?

Large external debt stock has been identified as one of the most important factors which have restricted the development of many poor countries. The consensus in the literature remains that external debt promotes growth to the extent that a country does not exceed its debt carrying capacity. Otherwise, additional debt accumulation would serve as a tax on future investment returns capable of creating disincentive to invest in the highly indebted countries. In the light of these arguments, this study investigated the possible role of domestic investment in the non-linear relation between external debt and economic growth in Nigeria over the period from 1981 to 2015. Based on the results of threshold regression analysis employed in this study, the overall findings showed that the impact of external debt on economic growth is sensitive to both measures of external debt used, and whether or not the role of domestic investment is accounted for. Specifically, this study confirmed the existence of the debt Laffer curve associated with the debt overhang theory arising from excessive external debt accumulation. Similarly, empirical support was obtained for the crowding-out effect of excessive external debt servicing. Also, accounting for the role of domestic investment in the non-linear relation between external debt and economic growth reduces the optimal debt carrying capacity of the country. It is therefore suggested that the Nigerian government internalizes a maximum ceiling of 6.81% as the share of external debt stock in gross national income (GNI) so as to enjoy the resulting growth benefits. External debt financing sources that are free of interest charge could also be explored so as to circumvent the burden imposed by excessive external debt servicing

Does Governance Impact on the Foreign Direct Investment- Growth Nexus in Sub-Saharan Africa?

The central question this paper sought to tackle was “does the quality of institutions matter for the relationship between Foreign Direct Investment (FDI) and economic growth?” Using macroeconomic data on 27 Sub Saharan African (SSA) economies and six distinct measures of governance the findings showed that control of corruption, political stability and government effectiveness matter for the influence of FDI on economic growth in SSA. This key fi nding was found to be robust even in models where these three governance indicators were interacted with FDI. Furthermore, the results from threshold-type sample splitting showed that in the sample containing countries with a higher level of governance, the positive impact of FDI on growth has larger magnitude vis-à-vis the comparator group with poorer governance indicators. This significant threshold effects remained robust across specifications

The BRICS and Nigeria’s Economic Performance: A Trade Intensity Analysis

The study examined Nigeria’s trading relationship with the individual BRICS (Brazil, Russia, India, China and South Africa) by applying a combination of descriptive and econometric techniques. The findings show that Nigeria’s trade intensity is highest with Brazil followed by trade with India and then South Africa. The outcome of the vector autoregressive analysis indicated that Nigeria’s gross domestic product (GDP) reverts faster to equilibrium when there is a shock to exports to and imports from Brazil, as against Nigeria exports to and imports from the other BRICS countries. A key policy implication of the results is that of all the BRICS countries, Brazil appears to have the most potential in terms of improving Nigeria’s trade position

An Empirical Trade Intensity Analysis of South Africa - BRIC Economic Relations

The study broadly focused on examining the trade and investment relationship between South Africa and the BRIC, using both descriptive and vector autoregressive estimation approaches. Specifically, the key objective is to investigate the impact of trade shocks between South Africa and the individual countries of the BRIC bloc. The findings illustrate that South Africa’s trade was more intense with India in the review period followed by trade with China. The impulse-response outcome showed that South Africa’s GDP reverts faster to equilibrium in the event of a shock in exports to and imports from Brazil. Also, when there is a shock to GDP, South Africa’s imports from Brazil reverts faster to equilibrium. The results of the variance decomposition indicate that inflation accounted for the highest variation in South Africa’s exports to and imports from both Brazil and China. Similarly, inflation explained the greatest variation in the GDP, while the greatest variation in the domestic inflation rate is explained by its own shock. JEL Codes: C32; C51; F5; F33 Keywords: Trade flows; Impulse response; Variance decomposition; BRIC; South Afric

Nexus between Foreign Remittances and Economic Growth in Nigeria: Role of the Financial Sector

In recent times, the economic growth literature is becoming more interested in the macroeconomic impacts of foreign remittances. This focus could be because foreign remittances now constitute the largest source of foreign capital flows for developing countries next to foreign direct investment (FDI). To this end, the present study analyzed the possible role of the financial sector in the nexus between foreign remittances and economic growth in Nigeria over the period of 1981 to 2015. To circumvent the possible endogeneity problem among foreign remittances, financial development and economic growth, we employed the two-stage least squares (2SLS) technique. Unlike the previous findings, we offered new evidence that the complementarity or substitutability between foreign remittances and financial development in promoting Nigeria’s economic growth depends on the indicators of financial development used. We confirmed the complementary hypothesis in the case of the quantitative indicators of financial development, while we validated the substitutability hypothesis in favour of its qualitative measure. Both migrant workers and their beneficiaries should be encouraged to make use of banks so that foreign remittances could be made available to finance genuine investments. This could be possibly achieved through boosting the confidence of migrant workers in the domestic financial system and by raising the deposit rate so as to entice the beneficiaries to save a large chunk of remittances received

“I Prefer to Remain Old School and be Safe”: Fear of Fraud and Governance of Risk in Nigeria’s Cashless Ecosystem

This article provides insight into the prevalence of fraud in Nigeria’s financial cashless ecosystem and how trust is being built in the system to check the growing menace. It is motivated by two overarching questions: Does fear of fraud constitute an impediment to financial inclusion? How does the existence or otherwise of risk governance mechanisms mediate the nexus between electronic fraud and financial inclusion? Using qualitative methods to probe participants in southwestern Nigeria on these issues, the findings show how fear of fraud, indirect experiences of fraud, and fraud governance shape adoption and behaviour in the Nigerian banking system

Government Spending and Economic Growth: A Revisit of the Nigerian Experience

Given the continued debate surrounding the effectiveness and efficiency of government spending in Nigeria, this study adopts a modified Autoregressive Distributed Lag Model in order to investigate the impact of federal government spending on economic growth between 1961 and 2010. The main findings are that government total expenditure and recurrent expenditure have insignificant effect on real GDP growth irrespective of the lag period. However, capital expenditure has significant positive effect in the second lagged period. Nevertheless, the long run multiplier of government spending whether total expenditure, capital expenditure or recurrent expenditure, is negative. This means that in the long run real GDP growth is slowed by the negative government expenditure multiplier. The policy implication of the findings is that the quality and efficiency of government spending remains an issue in Nigeria as theory posits that the multiplier effect of government spending should be positive even if it is, as usual, lower than private sector investment multiplier