Capital flows to Nigeria: issues and determinants

Abstract

This paper examines issues in capital flows to Nigeria as well as its determinants. Using the Error Correction Modeling technique, results indicate that the macroeconomic conditions of host country, reflecting opportunities for investment, risk, market conditions, and rates of returns are very crucial in attracting capital. Most interestingly the speed of adjustment, indicating the sustainability of capital flow was highly significant. Thus, capital flow adjusts rapidly to changes in these variables in Nigeria. The paper concludes that the relevance of these variables imposes a great challenge to policy makers and recommends that the newly acquired autonomy of the Central Bank of Nigeria should help in the pursuance of a purposeful monetary policy that would make the macroeconomic conditions conducive for the inflow of external capital.