Push and pull factors for capital flows: SVAR evidence from the Nigerian economy

This study examined the determinants of capital flows in Nigeria, using quarterly data that covered the period, 2006 to 2018. The capital flows data include Foreign Direct Investment (FDI), Portfolio Investment (POI) and Other Investment (OTI) Flows. A structural VAR model was used to empirically assess the impact of push (global) and pull (domestic) factors shocks on FDI, POI and OTI inflows to Nigeria. Our results revealed that push factors, in particular, the US GDP growth rate and US interest rate, significantly affect capital inflows to Nigeria. The pull factors, Nigeria GDP growth rate and money supply had mild shock; the domestic output growth rate had positive effects while money supply had negative effects on capital flows. The forecast error variance decomposition (FEVD) analyses showed that the impact of the push and pull factors vary differently across time horizon. In particular, the role of internal factors increases and decreases over time. Our empirical evidence indicated that portfolio investment is more sensitive to internal and external economic environments, compared to foreign direct investment and other investments. Based on the findings, we recommend that policies should focus on developing mitigants to external vulnerabilities and promoting sound macroeconomic environment.