Financial Flows and Economic Growth in Nigeria

Abstract

This study examines how foreign direct investment (FDI), remittances (REM), and official development assistance (ODA) affect Nigeria’s economic growth (GDP) from 1981 to 2022. Using annual data from the Central Bank of Nigeria and the World Bank, we conduct unit-root and Johansen cointegration tests and estimate a Vector Error Correction Model (VECM). We further assess inflation as a moderating variable on the flows–growth nexus. The results show: (i) FDI has an insignificant short-run effect but a positive and significant long-run association with GDP; (ii) ODA yields near-term gains with a delayed positive effect, yet relates negatively to growth in the long run; (iii) remittances have delayed short-run benefits but lack strong long-run structural impact; and (iv) inflation dampens growth in the short run, with limited evidence of long-run pro-growth effects. Policy should prioritize patient, stability-oriented FDI reforms, tighten governance and project selection for ODA, lower remittance costs and steer them toward productive uses, and manage inflation to avoid eroding short-run growth.