Financial flows and sectoral performance in Nigeria: Trend analysis and causal effect

This study investigates the causal impact between financial flows and sectoral performance for selected sectors of the Nigerian economy using monthly data that ranges between January, 2008 and October, 2022. While Toda-Yamamoto causality test is applied, further extension is done on the trend analysis among flow variables, performance indices and some macroeconomic variables of the economy. The variable that measures sectoral performance is constructed as an index and is found to align with other measures of performance. The findings from this study are plausible. One, external financial flow and exchange rate nexus is suggestive that they are prone to external shock. While the effect of financial crisis constitutes an insignificant threat to external financial flow, that of COVID-19 crisis suggests that external flow is shock-specific. Again, further evidence reveals that the fundamental nexus between interest and internal financial flows is still held. In nearly all these sectors, higher interest rates are associated with falling internal financial flows. On the causality, there is evidence of unidirectional causality that runs from performance to flow in agricultural sector, indicating that foreign investors in the agricultural sector usually make necessary assessments before making any investment choice. As for the internal financial flows, evidence supports unidirectional causality between internal financial flow and performance indices for agricultural and manufacturing sectors, which suggests that performance dictates volume of loan. This study thus offers important policy implications for investors.