The Impact of Exchange Rate Dynamics on Capital Inflows in Nigeria (1970-2010 )

Abstract

Exchange rate dynamics has been a persistent factor affecting capital accumulation in developing economies especially in the area of capital inflows which measures the rate of movement of capital into an economy as it concerns its international consumption-investment relation with other economies. However, there are many factors that affect the rate of capital inflows and outflows into and out of a given economy. This work examines the impact of exchange rate fluctuations on capital inflows in Nigeria from 1970-2010. Using the generalized autoregressive conditional heteroscedasticity (GARCH) model, results obtained indicate that the impact of exchange rate fluctuations on capital movement into Nigeria economy at this period is not so intense as that of  its trade openness. The study therefore, recommends that trade openness policies should be formulated and implemented such that they would induce maximum capital inflows needed for economic growth.

Key words: Capital,  Inflows,  Exchange rate, Volatility, and Inflation