Foreign Capital Inflow and Standard of Living in Nigeria
Abstract
This study investigates the effect of foreign capital inflows on poverty reduction and standard of living in Nigeria. Anchored on the Big Push Theory and complemented by Modernization, Dependency, and Institutional perspectives, the study adopted an ex post facto research design using annual secondary time series data from 2000 to 2024, sourced from the World Bank Development Indicators, Central Bank of Nigeria Statistical Bulletin, and National Bureau of Statistics. Foreign capital inflows were proxied by foreign direct investment (FDI), foreign portfolio investment (FPI), and workers’ remittances, while the poverty gap index served as the measure of poverty. The econometric methodology involved unit root tests (ADF and PP) to establish stationarity, followed by the Autoregressive Distributed Lag (ARDL) bounds testing approach to examine long run cointegration, complemented by an Error Correction Mechanism (ECM) to capture short run dynamics. Diagnostic tests confirmed robustness of the model. Results showed that foreign capital inflows significantly affected poverty gap in Nigeria (Adj. R² = 0.89, F statistic = 50.88, p < 0.01). Specifically, previous year poverty exerted a strong positive and significant effect on current poverty (λ₁ = 0.96, p < 0.05), indicating persistence of poverty. Remittances exerted a positive but statistically insignificant effect (λ₂ = 0.44, p > 0.05), reflecting their consumption driven nature. FDI had a negative and significant effect (λ₃ = 1.09, p < 0.05), confirming its role in poverty reduction through employment generation, productivity gains, and technology transfer. FPI showed a positive but insignificant effect (λ₄ = 0.24, p > 0.05), underscoring its volatility and limited developmental impact. The study concludes that foreign capital inflows exert differential effects on poverty reduction in Nigeria. While FDI significantly reduces poverty, remittances and FPI alone are insufficient to achieve structural poverty alleviation. Policy implications highlight the need to channel remittances and portfolio inflows into productive ventures, strengthen institutional frameworks, and create a stable macroeconomic environment to maximize the poverty reducing potential of foreign capital.