FINANCIAL DEVELOPMENT, FOREIGN DIRECT INVESTMENT AND EXPORT DIVERSIFICATION IN NIGERIA
Author: Mohammed Shuaibu
Volume: 59 Issue No:2 Year:2017
Abstract: Research on the nexus between export diversification (ED), financial development (FINDEV) and foreign direct investment (FDI) in Nigeria has received scant attention. The few existing studies have either focused on the determinants of ED but ignored the explicit role of FINDEV and FDI inflows or considered Nigeria as part of a crosscountry study, thereby ignoring its peculiarities. This paper therefore seeks to probe this linkage using the Toda Yamamoto causality test, the bounds testing approach to co-integration and error correction model to analyse data spanning 1970 to 2015. Findings indicate the existence of a causation running from FDI to ED but not the reverse as well as a causal link running from ED to FINDEV. This is similar to the results obtained when breaks were included as ED and FDI inflows were found to cause FINDEV. The long-run analysis revealed the existence of a stable co-integrating association between the variables and underscored the positive role of infrastructure development and FINDEV towards diversification. The parsimonious error correction models indicate 79 per cent (no break) and 75 per cent (break included) speed of adjustment to equilibrium in the event of a long-run disturbance to the system. Specifically, the contemporaneous coefficients of FINDEV, infrastructure and human capital development were found to exert a positive and statistically significant impact on ED. Our findings make a case for deepening the financial system, increasing human capital development efforts as well as creating incentives for infrastructure investments that can support the development of export-oriented sectors.
Share :