Foreign Inflows and Inflation Rate in Nigeria (1999 -2023): A Granger Causality Approach

Abstract

This study examined the impact of foreign inflows on the inflation rate in Nigeria. Data were collected from the World Development indicators for the period 1999 to 2023. Using the Granger causality test it shows that none of the variable granger cause the other (i.e. no direction). From the ordinary least square technique, the result F-statistic, that is the overall estimation for all the variables in the model, shows that foreign inflows was positively insignificant (probability = 0.108581 and coefficient = 2.193544). Hence, the study concludes that the independent variables foreign inflows have no significant impact on the inflation rate in Nigeria. The study, therefore, recommends that the government should encourage inflows of FDI and properly direct funds to meaningful investment in the critical sectors of the economy for the adequate production of goods and services for both export and domestic consumption to improve our balance of payments. Also, DRE should be improved upon and funds directed to capital investment and less on purchases of foreign or imported goods and luxury items that are not meant for further production of goods and services. Again, the government should put into use ODA’s funds; a proper matching concept should be adopted instead of diversion of funds to other uses.