Growth Effects of Capital Account Liberalization Evidence from Vector Error Correction Model in Nigeria

Abstract

Theoretical and empirical literature continued to present conflicting thesis on the desirability and consequences of capital account liberlisatilon, especially for developing countries. The study focused at verifying the growth effects of this phenomenon for the Nigerian deregulation economy.  The paper uses the cointegration and the associated error correction procedure on quarterly data on Nigeria for the penod 1986(1) and 2000(4) to estimate a standard growth liberalisation for the Nigerian Economy. The results from the Augmented Dielrey-Fuller (ADP) test confirmed that all variables are of random walk; ie {l(1-)}, while the Johnasen cointegration likelihood ratio test established the presence to two cointegrating mlationship among the four- variable model. Consequence uponthe foregoing, an error- correction model was developed whichwas shown to be well specified relative to its own information set and capable of parsimoniously representing the data set, 
The findings from this stud); confirmed that the surge in inflow of foreign private capital that occasioned the opening of the country capital-accounts in‘ the late eighties have had positive ef’fects on growth performance in Nigeria. This result runs contrary to common positions in literature that capital account lilweralizatioii is inimical to economic performance for less develop countries.