Economic growth effect of private capital inflows: a structural VAR approach for Nigeria

Abstract

Purpose: The purpose of this paper is to examine the effect of shocks in the various components of private capital inflows on economic growth in Nigeria using quarterly data in the period 1986Q1–2016Q4. Design/methodology/approach: The study employs the impulse response function and the forecast error variance decomposition of the structural vector autoregression (SVAR) model. Findings: The research result shows that shocks in foreign direct investment (FDI) inflows and portfolio investment inflows have a positive and significant impact on economic growth in Nigeria. In addition, FDIs accounted for significant variation in the growth of the Nigerian economy followed by portfolio investments, while personal remittances exerted the least variation in growth. Practical implications: The government should promote a favorable macroeconomic environment for existing and potential foreign investors to ensure the continued inflows of FDI and portfolio investment. Originality/value: The novelty of this study lies in disaggregating private capital inflows and analyzing the effect of the shock of each component on the growth of the Nigerian economy using SVAR.