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Foreign Direct Investment and the Nigerian Financial Sector Growth

  • Oke, Micheal Ojo

    ()

    (Faculty of Management Sciences Ekiti State University, Ado Ekiti, Nigeria)

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    Foreign Direct Investment (FDI) stimulates financial sector growth through the presence of foreign participation in investment in the nation. This paper explores the relationship between foreign direct investment and financial sector growth, providing empirical evidence from Nigeria. Annual time-series data were gathered on foreign direct investment, market capitalization, Gross Domestic Product, External Debt, Inflation rate, Exchange Rate and Degree of openness (ratio of imports and exports to gross domestic product) from 1981-2010. The empirical model was analyzed using the econometric techniques of ordinary least square method, unit root test, co-integration test, Error correction Mechanism, and Granger causality test. The findings suggest that the inflow of FDI has a positive impact on the Financial Sector in the short run but fail to translate to real long financial sector growth that could promote speedy economic growth due to the fact that the bulk of foreign direct investment has been channeled to other sectors of the economy namely the Oil and Gas Sector. The study recommends that government should encourage and formulate policies that will increase the volume and magnitude of Foreign Direct Investment into the Financial Sector as well as implement policies that attract foreign participation in domestic economy and create good and conducive investment climate that assures that foreign businesses thrive, among others.

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    Article provided by Asian Economic and Social Society in its journal Asian Economic and Financial Review.

    Volume (Year): 2 (2012)
    Issue (Month): 2 (June)
    Pages: 262-275

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    Handle: RePEc:asi:aeafrj:2012:p:262-275
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    1. Tschoegl, Adrian E, 1983. "Size, Growth, and Transnationality among the World's Largest Banks," The Journal of Business, University of Chicago Press, vol. 56(2), pages 187-201, April.
    2. Kenneth A. Froot & Jeremy C. Stein, 1989. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," NBER Working Papers 2914, National Bureau of Economic Research, Inc.
    3. James R. Markusen & Keith E. Maskus, 2001. "General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence," NBER Working Papers 8334, National Bureau of Economic Research, Inc.
    4. Gunter Dufey & Ian H Giddy, 1981. "Innovation in the International Financial Markets," Journal of International Business Studies, Palgrave Macmillan, vol. 12(2), pages 33-51, June.
    5. Sebnem Kalemli-Ozcan & Laura Alfaro & Vadym Volosovych, 2003. "Why doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation," Working Papers 2003-01, Department of Economics, University of Houston.
    6. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
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