Abstract
This paper investigates the impact of monetary policy tightening on external development finance flows in Nigeria, focusing on foreign direct investment (FDI), official development assistance (ODA), and remittances over 1981–2023. Using the ARDL bounds testing approach, the study examines short-run and long-run dynamics between monetary policy instruments (monetary policy rate, cash reserve ratio, liquidity ratio, and broad money supply) and development finance inflows, controlling for inflation and GDP growth. Results reveal striking asymmetries. FDI is sensitive to liquidity constraints, with the cash reserve ratio exerting a weak negative effect, while money supply expansion enhances investor confidence. ODA responds positively to liquidity ratios in the short run and is conditioned by macroeconomic performance in the long run. By contrast, remittances are policy-neutral and driven by historical persistence. The findings highlight a policy dilemma. Monetary tightening stabilizes the economy but risks crowding out external finance. Nigeria requires a differentiated monetary framework that balances stability with preserving long-term capital inflows.
Recommended Citation
Kanwanye, Hilary Temofeh Ph.D
(2026)
"Development Finance Flows under Monetary Policy Tightening: The Nigerian Experience 1981-2023,"
Tanzanian Economic Review: Vol. 16:
Iss.
1, Article 3.
DOI: 10.65085/2507-7740.1005
Available at:
https://commons.udsm.ac.tz/ter/vol16/iss1/3