Oil Related Vs Non-oil Related Foreign Capital Inflows: Test of Causality on Economic Development in Nigeria

Prominent and significant is the contribution of foreign capital inflows on economic development of capital deficient countries. The theoretical postulation that a well-managed foreign capital inflow has the capacity of boosting economic development make less developing countries see foreign capital as an alternative to bridge their saving deficient gap. This study thus emphasis is on the Nigerian context using historical data to identify which of this inflows contribute more to economic development over time. The study scope covers the period 1986 to 2019 where capital inflows is decomposed into oil related and non-oil related inflow while the misery index is used as a metric of economic development. Ordinary least square and granger causality test is the tool of analysis for the study. From our findings, we discover that the assertion of foreign capital influencing economic development does not hold in the Nigerian context as result shows that the existing development capacity of a nation is what determine the volume of foreign capital that flows into the country and not the other way round. This implies that foreign investors only invest in a stable economy where returns from their investment is guaranteed. As such, we recommend that more investment friendly environment such as (adequate security, electricity stability, pocket friendly tax rate for foreign investors, good road network nationwide) should be considered as this will help attract more foreign investors and further keep the existing once as the exit of most of these foreign investors from the Nigerian region could be the reasons for its insignificant contribution to economic development in Nigeria