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The Case Of Expansionary Monetary Policy And Capital Inflow: Evidence From An Emerging African Country

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  • Samson E. Edo

    () (Department of Economics, University of Benin)

Abstract

In this paper, the case of expansionary monetary policy and capital inflow is investigated in the context of the Nigerian economy. The investigation reveals that increase in money supply contributed to the decline in total capital inflow to the economy, and in particular, the contribution was quite significant for foreign direct investment, as well as other financial inflows (excluding portfolio investment). The contribution in respect of other financial inflows superseded that of foreign direct investment. These findings, derived from a rigorous analysis based on vector auto-regression model, demonstrate that expansionary monetary policy was pursued over the years to the detriment of capital inflow and its potentials for economic growth, suggesting that efforts need to be intensified to attract more foreign capital, instead of undue emphasis on monetary expansion. This could be a better option to facilitate rapid economic growth of the country, and indeed all developing countries.

Suggested Citation

  • Samson E. Edo, 2007. "The Case Of Expansionary Monetary Policy And Capital Inflow: Evidence From An Emerging African Country," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 32(1), pages 129-146, June.
  • Handle: RePEc:jed:journl:v:32:y:2007:i:1:p:129-146
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    Keywords

    Monetary Policy; Capital Inflow; Emerging Economy;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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