Financial Globalisation and Domestic Investment in Developing Countries: Evidence from Nigeria

Abstract

Financial globalisation is hypothetically helpful to a country to the extent that capital inflows augment available domestic savings for investment purposes. This may be impossible where a globalised country finds itself experiencing more capital outflows than inflows. In this study, we identified the factors that determine the level or degree of financial globalisation of a country as the nominal exchange rate, the level of financial development as captured by the level of financial deepening of the financial system and trade. Using the Kaopen (Capital opening index) and average exchange rates measures of financial globalisation the paper found that, for Nigeria, the greater the level of financial globalisation, the more Nigeria experienced capital outflows. Export is particularly positively impactful on capital outflows. Capital outflows have depleted available domestic resources and impacted domestic investment negatively. The paper recommends the greater need for autonomous investment to crowd in other investments by implementing policies that encourage investment in the economy. This situation may not improve until there is a proactive and deliberate action from the government to improve investment, especially of infrastructure, in the economy.

DOI: 10.5901/mjss.2013.v4n6p213