Heterogeneous Effects of External Financial Flows on Manufacturing Sector Performance in Nigeria: Evidence from FDI, FPI, And Remittances

By: Joseph Nsabe Ndome, Malachy Ashywel Ugbaka

Pages: 699–723, Volume: 3, Number: 1

Published by: AEFUNAI Journal of Economics, Finance and Development Studies, Alex Ekwueme Federal University, Ndufu-Alike, 5/1/2026, 2026

ISSN (Electronic): 2536-6742

DOI:

Heterogeneous Effects of External Financial Flows on Manufacturing Sector Performance in Nigeria: Evidence from FDI, FPI, And Remittances

Abstract:

This study examines the impact of foreign capital inflows on manufacturing sector performance in Nigeria using an Autoregressive Distributed Lag (ARDL) model and its associated Error Correction Mechanism (ECM). Manufacturing performance is proxied by the manufacturing value added (MVA), while key explanatory variables include foreign direct investment (FDI), foreign portfolio investment (FPI), and remittances, alongside macroeconomic controls. The long-run results reveal that FDI and remittances exert positive and statistically significant effects on manufacturing performance, whereas FPI has a negative but insignificant impact, indicating its limited contribution to real sector growth. Among the control variables, trade openness, exchange rate, and electricity consumption significantly enhance manufacturing output, while inflation and interest rate exert negative effects. The short-run dynamics confirm these findings, with FDI and remittances maintaining positive and significant impacts, while FPI remains insignificant. The error correction term is negative and highly significant (-0.6234), indicating a strong speed of adjustment to long-run equilibrium, with approximately 62% of short-run disequilibrium corrected annually. The study concludes that not all forms of foreign capital inflows are equally beneficial to the manufacturing sector. It recommends that policymakers prioritize policies that attract stable and productivity- enhancing inflows such as FDI, while also creating financial instruments to channel remittances into industrial investments. Additionally, improving power supply and maintaining macroeconomic stability are crucial for sustaining manufacturing growth.

Keywords: Heterogenous Effects; Financial Resources; Foreign Direct Investment; Foreign Portfolio Investment; Remittances Manufacturing.