Capital Flows Interactions in a Fragile State: Evidence from Nigeria

Abstract

International transfers and foreign capital inflow remains a significant source of capital to fragile state economies and developing economies in general. These transfers include but not limited to official development assistance (ODA), remittances and foreign direct investment (FDI) among others. The main objective of this study is to empirically investigate the interactions between capital flows (Remittances, FDI and ODA) in a fragile state using the case of Nigeria. The study tests for the complementarity or substitutability among these capital flows with the Autoregressive Distributive Lag (ARDL) estimation technique, using data over the period 1980 to 2015. The study found that remittances complement both FDI and ODA. Also, the study found that FDI and ODA are substitutes. However, after testing whether the level of economic development affects the interactions of capital flows, the study found that the complementarity and substitution vanishes as level of economic development progresses.

Keywords: Capital Flows; Economic Growth; State Fragility;

JEL Codes: C32; F30; O43