ABSTRACT

This study investigated the determinants of capital flows to Nigeria for the period 1980 to 2020. The determinants of capital flows were categorized into push, that is, global factors such as international liquidity, global real gross domestic product (GDP) growth rate, global risk aversion, and global interest rate and pull factors, that is, domestic factors such as Nigeria's real GDP growth rate, Naira-Dollar exchange rate, monetary policy rate, and inflation. Capital flows were measured by foreign direct investments (% of GDP), foreign portfolio investments (% of GDP), and growth rate of international banks' credit flows. Using the Augmented Dickey-Fuller unit root test approach, the data collated for the study were found to be of mixed integration, (that is at levels and first difference) which necessitated the application of the Autoregressive Distributed Lag (ARDL) for the long and short run relationship among the variables. The ARDL bounds tests showed that capital flows and its components were cointegrated with the push and pull factors that were used as the independent variables. In the long run, it was found that aggregate capital flows was negatively and significantly affected by push factors such as global real GDP growth rate, volatility index and global interest rate and pull factors such as domestic real GDP growth rate, exchange rate and domestic inflation rate were found to be negative and significant determinants of capital flows. In the short run, all the push factors all had a significant and negative effect on capital flows except the global interest rate which turned out with a positive coefficient. For the disaggregated capital flows, it was observed that the push and pull factors had a time varying effects on foreign direct, foreign portfolio and international banks’ credit flows but the effects were more significant in the short run probably due to the boom and burst of both global and domestic business cycle. Overall, the interactions between push and pull factors were found to be more dominant in capital flows determination following the high coefficient of determination observed in the error correction mechanism. The error correction mechanisms for the models showed a significant adjustment of aggregate capital flows from short run shocks to long run equilibrium following the dynamics and interactions of the push – pull factors. These results suggested that efforts geared towards attracting capital flows to Nigeria, policymakers should take cognizance of both push and pull factors in policy formulation.