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It rebounded, however, in 2010, and since then has maintained a relative stable contribution to the nation’s GDP. The contribution of portfolio investment also experienced a major setback in 2008 following the global financial crisis. However, the contribution of portfolio investment to the nation’s GDP has been relatively unstable particularly in 2004/2005, which marked the commencement of a bank consolidation exercise by the Central Bank of Nigeria (CBN).
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The trend reveals that the contribution of FDI to GDP has been fairly stable over the period. The graph also depicts the growth in GDP in the period. An overview of the role of private capital inflows in growthįigure 1 represents the percentage contribution of FDIs to gross domestic product (GDP), portfolio investment to GDP, and remittances to GDP between 19. Section 6 presents the results and discussion of findings while the conclusions and policy implications are presented in the last section of the study. Section 5 presents the methodology and data of the study. Section 4 features the theoretical framework. Section 3 consists of a review of past literature. Section 2 presents an overview of the role of private capital inflows in the growth of the Nigerian economy. The rest of the paper is organized as follows. As a result, this study seeks to analyze the effect of shocks in various components of private capital inflows on economic growth in Nigeria using the structural vector autoregression (SVAR) approach. These studies, however, have paid less attention to the effect of shocks in the various components of private capital inflows (FDI inflows, portfolio investment inflows (PFI) and remittances) on the growth of the Nigerian economy.
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Akinlo, 2004 Omisakin et al., 2009 Adegbite and Ayadi, 2011 Ekwe and Inyiama, 2014 Saibu, 2014 Edu et al., 2015). Studies on capital inflows and economic growth abound in Nigeria (e.g. Despite the various policies and reforms, the rate of private capital inflows still lags behind rather than leads growth, and the volume of private capital inflows has continued to fall short of the resource gap ( Bello, 2014). Some of these policies include the Structural Adjustment Program of 1986 the Nigerian Investment Promotion Commission of 1995, aimed at enhancing the investment climate of the nation the National Economic Empowerment and Development Strategies, launched in 2003 to make resources available for investment in infrastructure and social services and the financial sector reforms, aimed at enhancing private led-growth and ensuring macroeconomic stability ( Owo, 2013). For instance, Nigeria has initiated some policies and programs over the years in a bid to attract foreign capital. Furthermore, private capital flows promote the creation of new job opportunities and boost economic growth ( Ajayi, 2006).Ĭonsidering the role of private capital flows in economic growth, policy makers in the developing economies have given attention to the need to attract foreign capital. Private capital inflows, according to Carkovic and Levine (2005), Ralhan (2006) and Ocharo (2013), help to broaden and deepen the financial markets, increase liquidity, and facilitate the transfer of technology and management expertise. Private capital inflows, which are transmitted through foreign direct investment (FDI), portfolio investment and remittances ( Obadan, 2004), constitute a crucial channel through which resources are transferred from the rich-developed countries to the poor-underdeveloped countries ( Chatterjee and Turnosky, 2007). One of the major constraints of economic growth in developing countries is the inadequacy of savings and investments ( Jagadeesh, 2015), and one way of easing the constraints of the low level of domestic savings and investment is to attract inflows of private capital ( Obadan, 2004).
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