Impact of interest rate differential, exchange rate changes and political stability on Foreign capital inflow in Nigeria: Discrete threshold regression model

Figures & data

Figure 1. Trend analysis of foreign capital inflow between 2010 and 2020 in million of US Dollars.

Source: Author’s plot from CBN Statistical Bulletin (2020).

Table 1. Descriptive outcomes

Statistics	ERA	FCI	IRD	POS
Mean	107.8673	−695693.2	−3.822109	1.073171
Maximum	387.6500	1932253.	15.71117	7.000000
Minimum	0.610000	−5701752.	−74.45177	−7.000000
Std Deviation	109.1078	1582396.	15.35718	5.533490
Skewness	0.944204	−1.406038	−2.632216	−0.499521
Kurtosis	3.069764	5.074496	12.36231	1.501288
Jarque-Bera	6.100378*	20.86099**	197.0854**	6.542218*

** and * depict statistically significant at the 1% and 5% significance levels, respectively.

Table 2. Unit roots test result

	ADF_URT					Zivot-Andres unit root test (ZAURT) with break
Variables	Level	1^st diff	2^nd diff	I (d)	Lag	Level	B-P	1^st diff	B-P	I(d)	Lag
ERA	2.45	−4.4**		I (1)	0	−2.73	2015	−5.5**	2014	I (1)	0
FCI	−1.37	−6.8**		I (1)	0	−2.77	2015	−6.1**	2007	I (1)	1
IRD	−7.**			I (0)	0	−8.6**	1997			I (0)	0
POS	−1.7	−2.5	−10**	I (2)	1	−6.0**	1999			I (0)	1

Source: Authors’ computation. Using Eviews 12. ** (*) shows the variable is stationary at 1% (5%) level of significant. B-P represents the break point period.

Table 3. Discrete threshold specification test

Threshold variable	Maximum no. of thresholds	Estimated threshold	Threshold data value	Adjacent data value
IRD	5	1	3.68297	3.2118

Source: Authors’ computation with Eview 10.

Table 4. Bai-Perron Multiple Thresholds Test

Threshold test	F-statistics	Scaled F-statistics	Critical value
0 against 1	8.923525	26.77058*	13.98
1 against 2	1.729767	5.189300	15.72

**[*] denotes rejection of null hypothesis at 1% [5%] significance level, respectively. Source: Computed by the Researcher with Eview 10.

Table 5. Summary of discrete threshold regression result

Threshold variable: d(IRD). Threshold value: 3.682971
Variables	Coefficient	Std. Error	t-Statistics	Probability
Low interest rate differential regime (IRD <3.682971) − 22 obs
d(IRD)	0.035846	0.031808	1.126958	0.2605
d(LERA)	−1.890263***	0.119590	−15.38816	0.0000
Constant	4.495422***	0.275187	16.33586	0.0000
High interest rate differentials regime (IRD >3.682971) − 19 obs
d(IRD)	0.260632***	0.013633	19.11788	0.0000
d(LERA)	0.308586***	0.081300	3.795663	0.0002
Constant	6.362244	0.695474	9.148063	0.0000
Non-threshold variable
d(LPOS)	0.119591	0.017957	6.659693	0.0000
Robustness check
B-G Serial A/C= 1.61 (0.21) B-P-G H/D = 2.13 (0.07) R-R test = 2.27 (0.14) J-B Test = 1.32 (0.47). WT_IRD = 19.12** WT_LERA = 20.53**
R-squared = 0.821631; Adj R-Squared = 0.781876 F Statistics = 19.29543*** (0.00000)

***(**) denotes significant of variable at 1%(5%) significance level, respectively. B-G means Breusch-Godfrey serial correlation LM test; B-P-G H/D represents Breuch-Pegan-Godfrey Heteroskedasticity Test; R-R test is Ramsey RESET test; J-B test represents Jarque-Bera Test if normality. WT depicts Wald test of symmetry. Source: Computed by the Researcher with Eview 10.

CBN. (2020). Central bank of Nigeria statistical bulletin.

 Google Scholar