Abstract
The study examined the optimal level of capital inflows for manufacturing exports and economic growth in Nigeria. Annual data from 1981-2017 on foreign direct investment (FDI), foreign portfolio investment (FPI), cross border borrowing CBB (components of capital inflows), financial sector development (FSD), real gross domestic product (RGDP) and manufacturing exports (MEX) were sourced from various issues of the Central Bank of Nigeria (CBN) Statistical Bulletin while data on gross capital formation (GCF) and human capital (HC) were sourced from World Bank Development Indicator (WDI) database. Data collected were analyzed using threshold regression econometric techniques. The results from the optimal level showed that capital inflows (CINF) threshold value of (25.55%) with coefficient of (9.94) annually is the optimal point of capital inflows for Nigeria and the threshold point for manufacturing exports indicates no capital inflows (CINF) threshold value for manufacturing exports in Nigeria. This study concludes that the optimal point of capital inflows for economic growth is 25.55%; any threshold level above this sustainable level, economic growth will be affected negatively in Nigeria but no capital inflows threshold point exist for manufacturing exports and therefore recommends that excessive capital inflows should be avoided in the country so that it does not make administration and management of monetary policy difficult, while the needed capital inflows should be well monitored and channeled into sectors (like manufacturing, agriculture, mining and quarrying etc...) that have absorptive capacity for them. Key words: Capital, inflows, export, growth, optimal, threshold.
Highlights
Capital inflow is one of the main sources through which capital deficient countries augment inadequate domestic capital for investment purposes (Nkoro and Furo, 2012)
Using quarterly data from 1981-2012, the results show that the categorization of foreign capital inflows into direct and portfolio has significant relevance in terms of their effects on economic growth in Nigeria
Yt is economic growth measured by rgdp, fdit is foreign direct investment, fpit is foreign private investment, cbbt is cross border borrowing, gcft is gross capital formation, is m expt manufacturing export, hct is human capital, fsdt is financial sector development and μ is the white noise stochastic or random error term that is independently identically distributed (IID) with zero mean and constant variance, t is time trend
Summary
Capital inflow is one of the main sources through which capital deficient countries augment inadequate domestic capital for investment purposes (Nkoro and Furo, 2012). Studies have been conducted on capital inflows, export and economic growth in Malaysia (Haseeb et al, 2014; Etale and Etale, 2016), in India (GuruGharana, 2012), in South Africa (Gillian, 2011), in Tanzania (Bertha, 2013), in Bangladesh (Mohammed and Mahfuzul, 2016) in Kenya (Kenedy et al, 2014), and in USA (Tasos, 2014) Most of these studies examined either oil export, non-oil export or total exports, without specific emphasis on manufacturing export; given that manufacturing export is fundamental to economic growth. The aim of this study is to find the point or level at which capital inflows become excessive for manufacturing export and economic growth in Nigeria using threshold regression analysis
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