What Type of Investment Does Digital Finance Promote: Speculative or Non- Speculative?

Abstract

This study was set to investigate the elasticity of digital finance to foreign investment correlates in Nigeria. The quest was triggered by the need to determine whether or not foreign flows act as enablers for the development of digital finance. To determine the order of integration and ensure the stationarity of the variables used, we performed the traditional Augmented Dickey-Fuller (ADF).Using web-based transaction value as a proxy for digital finance, the baseline ARDL estimates show that foreign investment flows proxied by FDI, FPI and Loans act as drivers for digital finance. Web based transaction was found to be a positively significant function of foreign portfolio and foreign loans with different coefficient of elasticity. Foreign direct investment on the other handdid not significantly affect the dependent variable over the studied period. We established co-integration following Pesaran, Shin and Smith (2001) test for co integration by using the Bound Test results. The coefficient of the Error Correction Mechanism (-0.22) is negatively significant, which implies that 22 percent of the errors in the model are corrected annually. The ECM suggests that web-based transactions adjust to the speed and dynamics of investment drivers in Nigeria within the studied period. FPI and Loans were significant. Digital finance is promoting FPI and not FDI which is not healthy. Government should review her policies on investments and pay attention to essential ingredients for boosting investments in Nigeria like ease of doing business, security and corruption.