EFFECT OF FOREIGN CAPITAL INFLOW ON THE GROWTH OF MANUFACTURING SECTOR IN NIGERIA

Nigeria as Africa’s most populous black nation remain underdeveloped, mainly due to shambolic manufacturing sector growth. Rising from problems of insecurity, corrupt practices, consumerism structure have made gains from capital inflows minimal. This anomaly has resulted in shortsighted policy formulation and attendant consequences. Given the prominence of this problem and the gap existing in literature this study examined the effect of foreign capital inflows on the growth of manufacturing sector in Nigeria. The paper adopts ex post facto research design. The study covered a period of thirty-five (35) years from 1986 to 2020. Data were collected from the world Bank and CBN statistical bulletin. The foreign capital inflow was represented by foreign direct investment, foreign portfolio, official development assistance and official remittances inflow while manufacturing sector growth was measured using log of manufacturing sector output growth. This study employed the two-step Engle and Granger estimation procedure and the Granger Causality to estimate parameters of the indices of manufacturing output growth and capital inflows to Nigeria. Findings revealed that foreign direct investment (FDI) and portfolio investment have a significant positive relationship with the manufacturing sector growth in Nigeria while official development assistance and official remittances inflow have insignificant effect on the growth of manufacturing sector. Findings also revealed unidirectional causality of foreign direct investment (FDI) and portfolio investment to the growth of manufacturing sector in Nigeria. Based on the findings, it was recommended that the Nigerian government should create an enabling environment to attract more capital inflow that could augment domestic resources with the sole aim of growing the manufacturing sector.