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Global Financial Tightening and Capital Flow Reversal in Nigeria

Ekere, Edobot Udo Chukwu, Sancho Nwobuisi PhD

Abstract

This study examined the impact of global financial tightening on capital flow reversal in Nigeria over the period 1990–2024. Global interest rate, international oil price, Federal Funds Rate, and United States Dollar Index were used as proxies for global financial tightening, while net financial flows served as a proxy for capital flow reversal. Data were sourced from the Federal Reserve Economic Data , Statista, and the World Bank’s World Development Indicators . The study employed the Augmented Dickey-Fuller unit root test and the Autoregressive Distributed Lag bounds testing approach. The bound test confirmed the existence of a long-run relationship between global financial tightening and capital flow reversal. Long-run results revealed that global interest rate and international oil price exerted significant negative effects on net financial flows, while the Federal Funds Rate showed a positive and significant impact. The US Dollar Index exhibited a negative but insignificant relationship with net financial flows in the long run. The study concludes that global financial tightening has a substantial influence on capital flow reversal in Nigeria. It is recommended, among others, that the Central Bank of Nigeria, in collaboration with the Federal Ministry of Finance and the Debt Management Office, should strengthen domestic investment attractiveness through competitive interest rate policies and improved macroeconomic stability.

Keywords

Global Interest RateInternational Oil PriceFederal Funds RateUS Dollar IndexCapital Flow Reversal

References

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