Impact of Interest Rate Differential and Exchange Rate Movement on the Dynamics of Nigeria’s International Private Capital Flows

Karimo, Tamarauntari Moses

doi:10.33429/cjas.11220.2/8

Cited by 3 publications

(2 citation statements)

References 65 publications

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“…Foreign capital inflows play a crucial role in stimulating growth in developing economies like Nigeria, serving not only as a source of capital formation but also as a catalyst for technological development through the transfer of productive technology, innovation, skills development, and organizational improvement. The study acknowledges the importance of foreign capital inflows in Nigeria, with previous research by Makoni (2020), and Karimo (2020) highlighting key determinants, including the exchange rate. However, there remains a controversial and unresolved aspect concerning the impact of exchange rate fluctuations on foreign capital inflows.…”

Section: Introductionmentioning

confidence: 74%

Impact of Macroeconomic Determinants on Foreign Portfolio Investment in Nigeria

Tyoga,

Lawani,

Gambo

et al. 2024

EJAAFR

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Foreign capital inflows, including foreign portfolio investments (FPI), significantly contribute to filling Nigeria's domestic saving gap and are important sources of capital formation, technological development, innovative capacity, skills building, and organizational improvements. However, exchange rate fluctuations have controversially impacted FPI flows. Some studies found exchange rate changes increased Nigerian FPI, while others determined a negative relationship. This study examined macroeconomic determinants of FPI in Nigeria from 2011-2022 using quarterly data. Applying OLS modeling after confirming variables were integrated at levels and first differences, results showed exchange rates, inflation, and GDP significantly influenced FPI flows. Specification tests validated model stability. Analysis revealed exchange rate fluctuations substantially drove capital inflow and divestment decisions. Suggesting exchange rate uncertainty discourages long-term FPI, findings imply the need for fiscal policies supporting security and business environment certainty to attract foreign investors. Additionally, raising benchmark interest rates above inflation could ensure positive real returns and promote investments. Overall, creating macroeconomic stability through coordinated fiscal, monetary, and exchange rate policies appears critical for Nigeria to reap the development benefits of sustained foreign portfolio inflows. It therefore, suggested that, Fiscal Authority should create an enabling environment, especially by providing adequate security in the country in order to attract and retain foreign investors in Nigeria. Also, the monetary authority should increase the interest rate (MPR) which is the anchor rate in order to have positive rate of return after considering the rate of inflation in the country. In conclusion, the study recommended for further study especially on foreign direct investment in Nigeria.

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Section: Introductionmentioning

confidence: 74%

Impact of Macroeconomic Determinants on Foreign Portfolio Investment in Nigeria

Tyoga,

Lawani,

Gambo

et al. 2024

EJAAFR

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“…One major gap which the paper tends to fill is the paucity of research that combines the effect of interest rate and exchange rate on aggregate savings simultaneously. Various studies especially by Odionye et al [10] and Karimo [11] as well as others in the same category considered either interest rate volatility or exchange rate devaluation but not simultaneously. This study shall fill this gap to provide a one-stop shop to examine the two variables and their impacts on aggregate savings.…”

Section: Introductionmentioning

confidence: 99%

Saving in Presence of Volatilities in Interest Rate and Exchange Rate Devaluation

Umoru,

Tedunjaiye

2023

AJEBA

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Many developing countries have rationalized their economies in response to the liberalization of financial markets giving renewed concerns to the role of exchange rate management and interest rate deregulation. The study examined the effects of interest rate volatility and exchange rate devaluation on aggregate savings in ECOWAS using a panel group of grouped means (PMG) estimator. The study also applied GARCH/ARCH (1,1) models to ascertain volatility in interest rates amongst the countries. In Burkina Faso, Cabo Verde, Guinea, Ghana, Niger, Senegal, and Togo, holding bank savings accounts in form of demand and time deposits serves as a buffer to higher volatility in interest rates. This could be informed by increase in yearly percentage yield on a certificate of deposits for savings account holders. In Liberia, Guinea-Bissau, Gambia, Mali, Nigeria, Sierra Leone, Cote d’Ivoire, and the Republic of Benin, holding bank savings accounts in form of demand and time deposits because of higher volatility in interest rate is not a buffer compared to the acquisition of stocks and securities. Further finding from the study is that exchange rate devaluation had a negative drift on aggregate savings in all countries except Niger. This was attributed to undeveloped export sectors in these countries.

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