Abstract:

Nigeria is the largest economy in Sub-Saharan Africa, with its ability to grow depending on its attractiveness to foreign investors. As a result, the country must seriously consider a policy shift in order to diversify its economy from oil to other sectors. The current administration is seriously considering shifting Nigeria’s economy from overdependence on oil to manufacturing and agriculture. However, the swindling price of crude oil and the persistent devaluation of the Nigerian Naira are proving to make the policy shift difficult. Since this is vital to the future development of the nation, the outcome of this study is even more significant. This study will examine the effects of exchange rate volatility and capital inflows on the economic growth (GDP) in Nigeria between 1970 and 2013. The study will also disaggregate capital inflow into various components (FDI, FPI, ODA and Remittances) with a view to examine the effect of each component on the GDP. Studies have shown that these vital components of foreign capital inflow, which have been disregarded in most of the earlier studies, are of immense value. The study will use OLS in the first instance and Generalised Method of Moments (GMM) estimator to examine consistent estimators when lagged of dependent variables are used. This is to overcome the problem of endogeneity inherent in the long run growth determinants in line with Arellano and Bond (1991).