Global Economic Uncertainties, Foreign Capital Inflow and Foreign Exchange Market Pressure in Nigeria

Résumé

The Nigerian economy being a capital scarce, monolithic and import-dependent economy is worse hit by global economic uncertainties especially in the past three decades. This study therefore examines the impact of global economic uncertainties on the Nigerian foreign exchange market due to foreign capital inflow over the period from Q1 1986 to Q4 2021. A non-parametric quantile-causality test and the Structural Vector Autoregressive (SVAR) were employed to ascertain the transmission mechanism of global economic uncertainty to Nigeria’s foreign exchange market pressure via foreign capital inflow. The study found that global economic policy uncertainties granger causes foreign exchange market pressure in Nigeria from the middle to extreme tails. It also found the sensitivity of foreign exchange market pressure to uncertainties in global economic policy through foreign capital flow channels such as Official Development Assistance (ODA), Foreign Direct Investment (FDI), remittances and Foreign Portfolio Investment (FPI). The study, therefore, recommended that a deliberate policy aimed at increasing domestic production and export of non-oil goods and services that will increase the availability of foreign exchange to the economy and consequently reduce excess demand on foreign exchange market in Nigeria.