Causal Relationship between Banking Sector Development and Foreign Investment Inflows Volatility in Nigeria (2008-2014)
The paper aimed at testing the possibility of a causal relationship between banking sector development and foreign Investment inflow volatility in Nigeria from the period of the most recent financial crises of 2008 to 2014 using Toda and Yamamoto (1995) causality test. The result showed that there exists a unidirectional causal relationship from foreign direct investment volatility to banking sector efficiency also; there exists a unidirectional causal relationship from banking sector access to foreign direct investment volatility in the years under investigation. Also, a unidirectional causal relationship exists from the various indicators of banking sector development (banking access, banking efficiency and banking stability) to foreign portfolio investment volatility (except for banking sector depth with no causal relationship). However, there was no causality found between other foreign investments and banking sector development. The paper concluded therefore that, there exist a causal relationship between banking sector development and foreign investment inflows volatility in Nigeria.
Banking Sector Development, Capital Inflow Volatility, Toda-Yamamoto Causality
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