External Capital Inflows and Job Creation in A Capital-Deficient Economy: The Case Of Nigeria

Abstract

Unemployment is a serious problem in Nigeria. Capital is needed to increase labor employment. But due to the deficiency of domestic capital in Nigeria, it is necessary to attract external capital for better job creation in the country. This study therefore examined the impact of external capital inflows on unemployment in Nigeria. Specifically, the study examined the impact of foreign direct investment, foreign portfolio investment and migrant workers’ remittances on unemployment in Nigeria. The study applied Johansen co-integration test and error correctionmechanism (ECM) on annual time series data covering the period 1986 to 2019. The results showed that foreign direct investment (FDI) and foreign portfolio investment (FPI) inflows strongly aggravate unemployment in Nigeria. On the other hand, remittances (RMT) strongly contribute to job creation in Nigeria while gross fixed capital formation insignificantly reduces unemployment in Nigeria. The main recommendation, inter alia, is that there should be a general improvement in the country’s macroeconomic environment so as to attract the inflows of more external capital and also stabilize them for improved job creation in the country.