Investigating the Effect of Capital Inflow on Domestic Investment in Nigeria: A Vector Error Correction Model (VECM) Approach

The exact role of capital inflows enhancing domestic investment and promoting economic growth has been of great concern to policymakers and researchers taking into account the huge reliance on capital inflow in Nigeria. This study investigates the effect of capital inflow on domestic investment in Nigeria between the periods 1981 to 2016 using Vector Error Correction Model (VECM) approach. The variables used are the various components of capital inflow (foreign borrowing, foreign direct investment, portfolio investment, official development assistance and workers’ remittance) and domestic investment. The study revealed that a rise in the various components of capital inflows (foreign direct investment, portfolio investment, and official development assistance) would enhance domestic investment in the country while a rise in foreign borrowing and workers remittance would lead to decrease in domestic investment. Furthermore, the study revealed that capital inflows (portfolio investment and official development assistance) Granger cause domestic investment in the country. The study recommends that for government to close the savings and foreign exchange gap there is the need for appropriate policies to be design to determine the optimal level of capital inflow that will enhance domestic investment in the country. In addition, the government should provide adequate social amenities, infrastructural facilities, political stability and also conducive environment that is business friendly so as to attract foreign capital into the country for investment purpose. Keywords: Capital Inflow, Economic Growth, Domestic Investment, Nigeria, VECM. JEL CODE: F21, O55, P3

Credit Supply and Agricultural Production in Nigeria: A Vector Autoregressive (VAR) Approach

Agriculture used to be the mainstay of the Nigerian economy contributing over 70 percent to the country’s total output and accounts for over 90 percent of total food consumption. However, the performance of the sector has drastically deteriorated since the discovery of crude oil in 1956. The strategic roles of the agricultural sector in national development led the Federal Government to establish agricultural sector credit schemes and various other institutions to boost the level of productivity in the sector. Notwithstanding, the intensification of government and private sector support to the sector, the contribution of agricultural to GDP has fallen significantly creating a fundamental gap in resource allocation to the agricultural sector. The basic question raised in this research, is, does increased credit supply through the Agricultural Credit Guarantee Scheme Fund (ACGSF) and commercial loans to the sector boost agricultural sector productivity? This study examines the impact of the credit supply, and various commercial bank loan schemes on agricultural sector production using vector autoregressive (VAR) approach. Using time series data sourced from Central Bank of Nigeria Statistical Bulletin over the sample period of 1981-2013, the study found ACGSF to have performed poorly in explaining agricultural sector performance while commercial loans to agricultural sector had a significant impact on agricultural production. The policy implication of this study is that government should encourage the commercial bank to finance investment in the agricultural sector by granting credit facilities at below market interest rates. Keywords: ACGSF; Agricultural Production; Credit Supply; Nigeria; Vector Autoregressive Mode

Growth effects of capital inflows and investment in Nigeria

The aim of this study was to ascertain the growth effects of capital inflows using investment as a transmission channel between the periods 1981 to 2016 in Nigeria. The study employed the least square regression method to analyse the data. The outcome of the research indicates that capital inflows have a positive and significant effect on the growth of the Nigeria economy. This imply that foreign capital inflows have contributed to the economic growth of the country. Furthermore, the research output also showed that domestic investment has a positive and significant effect on Nigerian economic growth. From the findings of the study, it is concluded that capital inflow and domestic investment has positively contributed to the growth of Nigeria economy. The findings of this study posed significant policy direction. Firstly, the study emphasized the need for government and policy-makers to attract more inflow of foreign capital into the country but the detrimental effect of huge capital inflow into an economy should also be considered. Secondly, the government should determine the optimal capital inflow that would propel investment and growth in the country. Thirdly, the government should strengthen the macroeconomic fundamentals by deepening structural reforms so as to ensure sustainable capital inflows into the country. Finally, the government should create an enabling environment by providing the needed infrastructural facilities in a bid to attract foreign investors and encouraging domestic investment in the country

AN EMPIRICAL INVESTIGATION OF CAPITAL STRUCTURE AND TAX SHIELD ON BUSINESS DISTRESS IN NIGERIA: AN APPLICATION OF PANEL CORRECTED STANDARD ERROR (PCSE) APPROACH

Business distress may arise when firms fail to honor their promises to creditors and suppliers and this can lead to a situation where customers and suppliers begin to lose confidence in the firm which may affect the continued survival of the organization. The study investigated the impact of capital structure, and tax shield on business distress in Nigeria within the period of 2010 to 2014 using the panel corrected standard error (PCSE) approach. The variables used in the study are ALTMA Z-Score which measures business distress as dependent variable, LT_DTA, INTAX as independent variables, while control variables used in the study are TASST and FASTA. From the descriptive statistics result, the ALTMA Z score shows an average of 2.25 years which exceed the probability that firms will become distressed within 2years. Thus indicating that firms are not within the distress zone. The outcome of the panel corrected standard error (PCSE) result shows that capital structure (LT_DA) has a negative and significant relationship with business distress (ALTMA). Also, the result further shows that tax shield (INTAX) has a positive and significant relationship with business distress (ALTMA) in Nigeria

Capital inflows, exchange rate and agricultural output in Nigeria

The study applied the autoregressive distributed lag (ARDL) technique in investigating the effect of capital inflows and exchange rate on agricultural output in Nigeria between the periods 1981 and 2016. The technique was selected because the variables are integrated at both 1(1) and 1(0) and the sample size is considerably small. Variables used in the study are agricultural output (AO), private capital inflow (PRCI), public capital inflow (PUBCI), investment (INV), labor (L) and real effective exchange rate. Findings from the empirical research revealed that the variables are cointegrated. The research outcome also indicates that in the short run and long run, private capital inflow and public capital inflow positively affect the country agricultural output. The study also revealed that exchange rate depreciation would cause agricultural output to decline in the short and long run. Based on the research findings, it is recommended that the government should create an enabling and conducive environment to attract more inflows of foreign capital into the country to boost the agricultural output. Also, monetary authority should ensure the stability of the country's exchange rate (Naira) since exchange rate depreciation affects agricultural output negatively. Furthermore, there is the need for the harmonization of foreign capital inflow policy and monetary policy by the government, taking into consideration the optimal level of capital inflow that will not have a detrimental effect on exchange rate so as to ensure sustainable growth in agricultural output

Foreign exchange and the capital market dynamics: New evidence from non-linear autoregressive distributed lag model

The purpose of this study was to investigate and analyze the relationship between foreign exchange and capital market dynamics in Nigeria from January 1999 to February 2018. The study deployed the Non-Linear-ARDL model to study the dynamics of exchange rate and the capital market in Nigeria. The research outcome revealed that a rise (fall) in all-share-index is related to real exchange rate depreciation (appreciation), while real exchange rate depreciation (appreciation) is associated with an increase (decrease) in all-share-index. Besides, the research outcome also showed that there is a presence of time-specific long-run, bi-directional, and unidirectional causality with stronger interrelation after the Global Financial Crisis. The study recommends that to properly hedge and diversify portfolio against potential risk in these two markets, market players need to understand the dynamics between them