Globalization And Capital Flows: Cases of Nigeria And Ghana

This study aimed at examining the effect of globalization on capital ows (capital inows and capital outows) in Nigeria and Ghana for the period 1981 to 2019. Secondary data obtained from the World Bank Development Indicators was used to examine this effect. The ADF unit root test was used to test for stationarity of the variables and the result indicated that all variables are stationary at rst difference in both countries. The Johansen co-integration test revealed that co-integration exists among the variables in all models used in this study. In Nigeria, the result of the error correction model indicated that globalization has a negative relationship with capital inows in the current period while the relationship is positive and signicant in the rst lag. In Ghana, the result of the error correction model indicated that globalization has a positive and signicant relationship with capital inows in both the current period and the rst lag. For the effect of globalisation on capital outows, the error correction result showed that globalization has a positive and signicant relationship with capital outows in Nigeria in both the rst lag and the current year. In Ghana however, globalization has a positive relationship with capital outows in the current period but in the rst lag, the relationship is negative and signicant. It was then recommended that the issue of insecurity and policy inconsistency so as to allow the free ow of capital into both countries should be looked into. Also, the Nigerian and Ghanaian government should undertake policy measures and reforms that will help in providing sound macroeconomic policies which will create a more stable and conducive environment for investment. Finally, there should be an intensication of government efforts in its anti-corruption campaign as this will improve the country’s image and attract inow of funds from abroad for investment purposes in both countries.


Introduction
Globalization is the integration of national economies through trade and nancial interaction. It involves the movement of goods and services across national borders.
The quest for capital by nations especially developing nations as a complement to domestic savings for growth and development has been in existence for many decades. This is aggravated due to the gap between investments and savings required to sustain economic growth and evidenced by the required attention given to the drive for foreign capital as an crucial means in augmenting the saving-investment in developing countries which are often resource de cient (Balogun, Okafor &Ihayere, 2019).The long run development of an emerging economy like Nigeria would require persistent and massive investment expenditures that can match the dire need for capital. Due to the dynamism of the core economic underpinnings, several means are continuously being explored to attain these goals. One of the measures is to open the trade among nations and accelerate the smooth ow of foreign direct investment (Balogun et. al., 2019).
Over the years, globalization has proven to be the most adopted mechanism in dealing with economic development, improving the social welfare of states and strengthening political ties between countries (Onoitem, 2017). It has taken place for centuries and, with time, has accelerated, from the colonization of divert their investment abroad. Also, where the local currency is overvalued, it leads to real exchange rate appreciation in order to correct the over valuation. When currency devaluation is expected, investors usually move out their domestic assets and invest in foreign countries in order to avoid the capital loss that will result from devaluation. In order to nance the budget, government usually prints more money, a practice which is in ationary. If in ation persists, individuals will choose to reduce their real holdings of domestic currency in order to protect themselves against the so-called in ation tax. In relation to this, when scal de cit is nanced through bond sales, domestics resistant may expect that at some future date, their tax base liability may increase in order to pay for national debt. This as it were, induces domestic investors to move their assets to foreign countries to avoid potential tax liability.
Capital ows have myriads of adverse effect on the affected country. According to Deppler and Williamson (1987), capital out ow leads to a net loss investment and growth. Capital out ow perpetuates the debt crises not only through diversion of savings but also because retention of assets and earnings abroad erodes the domestic tax base and lead to more budget de cits that require contracting further debts to nance. Capital out ow can be reversed if the necessary economic policies are put in place.
According to Obadan (2004), one way of doing this is to restore con dence in the economy which would require the government to do a number of things with particular focus on the following; strengthening the nancial system and improve governance, pursue sound macroeconomic policies and appropriate structure reforms, tackling the weaknesses that are causing capital out ows. He further emphasized, that providing a stable nancial and macroeconomic environment is crucial to reducing uncertainty and arresting capital out ows.

Theoretical literature 2.31 The Investment Diversion Theory
This theory postulates that due to the macroeconomic and political uncertainty in developing country and the simultaneous existence of better investment opportunities in advanced countries like high foreign interest rates, wide array of nancial instruments, political and economic stability, favourable tax climate and secrecy of accounts, some unscrupulous corrupt leaders and bureaucrats usually siphon scarce resources from their countries to advanced countries. These funds are therefore, not available for investment at home leading to decline in aggregate investment, low economic growth, hence decline in employment, increase in dependency ratio and high death rate. These negative macroeconomic effects on these countries sometimes motivates the necessity to borrow from abroad to reactivate the domestic economy, which is sometimes further siphon thereby perpetrating external dependency and indebtedness.

Empirical literature
Ofori Atta (2017) centred his study on the effects of globalization on the manufacturing sector of Ghana having used FDI as a proxy for globalization. The study employed the simple ordinary least squares (OLS) regression and the empirical analysis was conducted using data between 1985 and 2013. It was found that the independent variable 'MANGH' was signi cant to explain the dependent variable FDI whose in uence was negative. This indicated that, there was a negative correlation between FDI and manufacturing in Ghana. The negative effect which emanated from trade, nancial sector and exchange rate liberalization, is materialized through stiffer competition, increased cost of production, and loss of con dence by indigenous investors. The study recommended among others that the government of Ghana must revisit policies relating to FDI and trade liberalization in order to salvage the manufacturing sector. Amaefule (2020)  Duodu and Baidoo (2020) examined the impact of capital in ows on economic growth in Ghana. Using annual time series data, spanning 1984-2018, the autoregressive distributed lag model is employed for the analysis. The results without interaction terms show that remittances have a positive impact on economic growth, whereas external debt and foreign direct investment impact economic growth negatively in the long run. Foreign aid exerts an insigni cant impact in both the short and long run.
However, the results reveal that external debt signi cantly impacts economic growth positively when interacted with quality of institutions variable in the long run. The results further reveal that remittances have a positive impact on economic growth in the long run when interacted with quality of institutions variable. It is, therefore, concluded that the quality of institutions in Ghana is crucial for economic growth. Important policy implications aimed at improving economic growth have been provided based on the ndings. (2017)  Olunkwa (2018) focused on capital ow components and industrial performance in Nigeria for the period 1980 and 2016. Furthermore, VEC Model is used for the study, while granger causality test is employed to examine the causal link between capital ow components and industrial performance proxied with industry value added. The result a rm that long-run and short-run relationship exists between capital ow components and industrial performance, and no causality exist between workers' remittance, o cial development assistance and industry valued, although unidirectional causality exist between foreign capital in ow and industry value added. In addition, the paper recommend that for there to be sustainable improvement in the industrial sector, government have to urgently address the issue of insecurity and policy inconsistency so as to allow free ow of capital, workers' remittance and foreign investors con dence into the country.

Maduka, Madichie and Eze
Ikpesu (2019) aims to ascertain the growth effects of capital in ows using investment as a transmission channel between the periods 1981 to 2016 in Nigeria. The study employed the least square regression method to analyse the data. The outcome of the research indicates that capital in ows have a positive and signi cant effect on the growth of the Nigeria economy. This implies that foreign capital in ows have contributed to the economic growth of the country. Furthermore, the research output also showed that domestic investment has a positive and signi cant effect on Nigerian economic growth. From the ndings of the study, it is concluded that capital in ow and domestic investment has positively contributed to the growth of Nigeria economy. The ndings of this study posed signi cant policy direction. Firstly, the study emphasized the need for government and policy-makers to attract more in ow of foreign capital into the country but the detrimental effect of huge capital in ow into an economy should also be considered. Secondly, the government should determine the optimal capital in ow that would propel investment and growth in the country.
Balogun et. al., (2019) examines the impact of capital ows on economic growth in Nigeria using data covering the period 1981 to 2016 and sourced from the Central Bank of Nigeria. The method of error correction model framework and autoregressive distributed lag was adopted in estimating our speci ed model. Findings from our estimated model reveal that capital ows signi cantly affect economic growth in Nigeria. The study thus recommends that, sound, robust and vigorous economic policies be formulated with the sole purpose of attracting and drawing capital ows into the country that helps to bridge the needed capital for economic growth and development in Nigeria.

Model Speci cation
From the objectives of the study, it can be observed that capital ows is considered as both in ows and out ows. That is: The model is further expressed in its log form as follows: lnCI = β 0 + β 1 lnGLO + β 2 lnGEX + β 3 lnMS + β 4 lnEXR + μ ….. (3.4) This model will be estimated for Nigeria and Ghana. Model 2: Effect of globalization on capital out ow In order to examine the effect of globalization on capital out ow, the model is given as: CO = f(GLO, GEX, MS, EXR) Expanding the model further, we have; CO= β 0 + β 1 GLO + β 2 GEX + β 3 MS + β 4 EXR + μ The model is further expressed in its log form as follows: lnCO = β 0 + β 1 lnGLO + β 2 lnGEX + β 3 lnMS + β 4 lnEXR + μ This model was estimated for Nigeria and Ghana.

Sources of Data
This study employed time series data for the period 1981 to 2019. It utilizes secondary data obtained from the World Bank Development Indicator.

Estimation Techniques
Unit Root Test, Johansen Co-integration test, Error Correction Mechanism (ECM),Granger Causality Test and Residual Diagnostics Tests were all employed in the analysis of the data.

Apriori Expectation
For model 1, the apriori expectation is given as: For model 2, the apriori expectation is given as: Where B o is the intercept when the explanatory variables are equal to zero and B 1 , B 2 , B 3 , B 4 are the coe cients or parameters attached to the explanatory variables. The inclusion of the error term (µ) in the model is to capture the impact of the other variables that are not included in the models.

Model 2: Effect of globalization on capital out ow
In order to examine the effect of globalization on capital out ow, the model is given as: Expanding the model further, we have; CO= β 0 + β 1 GLO + β 2 GEX + β 3 MS + β 4 EXR + μ The model is further expressed in its log form as follows: This model was estimated for Nigeria and Ghana.

Sources of Data
This study employed time series data for the period 1981 to 2019. It utilizes secondary data obtained from the World Bank Development Indicator.

Estimation Techniques
Unit Root Test, Johansen Co-integration test, Error Correction Mechanism (ECM),Granger Causality Test and Residual Diagnostics Tests were all employed in the analysis of the data.

Apriori Expectation
For model 1, the apriori expectation is given as: For model 2, the apriori expectation is given as:

Augmented Dickey Fuller (ADF) Test (Stationarity Test) for Nigeria
This test is conducted using the 5 per cent level of signi cance. The variables are therefore stationary when the p-value of the ADF test statistics is less than 0.05 and also when the test statistics are greater than the MacKinnon critical values at 5 percent signi cance level. The tables below present the results of the ADF unit root test for both Nigeria and Ghana.
The ADF unit root test results for Nigeria revealed that all variables are stationary only at rst difference, that is, the variables are integrated of order one. This is due to the fact that the probability values of the ADF test statistics are less than 0.05 and that the ADF test statistic values are greater than the MacKinnon critical value at 5 per cent signi cance level.

4.3.3: Error Correction Model for Model 1(One) for Nigeria
The ECM result on the effect of globalization on globalization in Nigeria is presented in the table above. The value of the R squared is given as 0.613055 which implies that the model is a good t and that changes in capital in ows can be attributed to changes in the independent variables by about 61 per cent. The probability value of the F statistics given as 0.010685 implies that all the independent variables employed for this study signi cantly determine capital in ows in Nigeria. The value of the Durbin Watson statistic is greater than the value of the R squared indicating the absence of spurious regression. The coe cient of the ECM is negative, less than one and statistically signi cant at the 5 per cent level of signi cance. This conforms to apriori expectations and implies that the speed of adjustment to long run equilibrium is quick (about 88 per cent).
Capital in ows in the rst lag have a negative relationship with capital in ow in the current period while capital in ow in the second lag has a positive relationship with capital in ow in the current period. This relationship is insigni cant in both the rst and second lag. In the current period, globalization has a negative and signi cant relationship with capital in ows in Nigeria. This does not conform to apriori expectations and it implies that a one per cent increase in globalization will lead to a decrease in capital in ow by about 31 per cent. This can be attributed to the fact that the business climate as well as the economic performance in Nigeria is not attractive to business people and so, capital ows into the country will reduce. In the rst lag however, this relationship is positive and signi cant meaning that a one per cent increase in globalization will cause capital in ows to increase by about 33 per cent. This relationship conforms to apriori expectations. Government expenditure in both current and one year lagged period has a positive relationship with capital in ow in Nigeria. A one per cent increase in government expenditure will lead to a 67 per cent increase in capital in ows in the current period and a 13 per cent increase in capital in ows in the lagged period. This relationship also conforms to apriori expectations. It implies that as government expenditure increases, capital in ow also increases.
Exchange rate has a positive and signi cant relationship with capital in ows in both the current period and one period lag. This means that as the exchange rate depreciates, capital in ow increases. This relationship conforms to apriori expectations as well. The Money supply in Nigeria has a positive relationship with capital in ows in the current period as well as the rst and second lag. This relationship is consistent with the apriori expectations of this study. It implies that as money supply increases, capital in ows also increases. The effect is however highest in the current period. In the current period, a one per cent increase in the Money supply will lead to a 32 per cent increase in capital in ows.

Residual Diagnostics Tests for Nigeria
To test the residuals for normality problem, the Jarque -Bera normality test was conducted and the result showed a P-value of 0.795831 which is greater than 0.05. This implies that the model is normally distributed. The Breusch-Godfrey Serial Correlation LM Test result has a P-value of 0.6481 which also is greater than 0.05 thereby signifying that the residuals are not serially correlated and similarly, the Breusch-Godfrey Hetereskodasticity reveals the absence of hetereskodasticity in the model given its associated p-value of 0.1899 which is greater than 0.05.
In summary, the residual diagnostic tests result reveals that the residual is not serially correlated, there is an absence of heteroskedasticity, and that the model is normally distributed.

Residual Diagnostics Tests for Ghana
To test the residuals for normality problem, the Jarque -Bera normality test was conducted and the result showed a P-value of 0.347327 which is greater than 0.05. This implies that the model is normally distributed. The Breusch-Godfrey Serial Correlation LM Test result has a P-value of 0.2231 which also is greater than 0.05 thereby signifying that the residuals are not serially correlated and similarly, the Breusch-Godfrey Hetereskodasticity reveals the absence of hetereskodasticity in the model given its associated p-value of 0.5469 which is greater than 0.05.
In summary, the residual diagnostic tests result reveals that the residual is not serially correlated, there is an absence of heteroskedasticity, and that the model is normally distributed.  The result further showed that a relationship of no causality exists between globalization and capital in ows as well as between the Money supply and capital in ows in Ghana.

Error Correction Model (ECM) for Model 2 (Nigeria)
The ECM result on the effect of globalization on capital out ow in Nigeria is shown in table below. The value of the R squared is given as 0.507674 which implies that the model is a good t and that changes in capital in ows can be attributed to changes in the independent variables by about 51 per cent. The probability value of the F statistics given as 0.000185 implies that all the independent variables employed for this study signi cantly determine capital out ows in Nigeria. The value of the Durbin Watson statistic is greater than the value of the R squared indicating there is no autocorrelation. The coe cient of the ECM is negative, less than one and statistically signi cant at the 5 per cent level of signi cance. This conforms to apriori expectations and implies that the speed of adjustment to long run equilibrium is a bit slow, that is, about 43 per cent.
The short run result indicates that capital out ows in the one year lagged period have a positive relationship with capital out ows in the current period. Exchange rate has a positive and signi cant relationship with capital out ows in Nigeria in the current period. In the current period, a depreciation of the exchange rate leads to an increase in capital out ows. In the one year lagged period however, a depreciation of exchange rate leads to a decline in capital out ows. The relationship between exchange rate and capital out ows only conforms to apriori expectations in the current period where the relationship is positive and signi cant. Government expenditure in both the current and the one year lagged period has a negative relationship with capital out ows in Nigeria. This relationship is only signi cant in the current period and it conforms to apriori expectations. It implies that as government expenditure increases by one per cent, capital out ows decrease by about 23 per cent in the current period and by about 60 per cent in the one year lagged period. Globalization in both the current period and the one year lagged period has a positive and statistically signi cant relationship with capital out ows in Nigeria. This implies that as the degree of globalization increases, capital out ows will also increase. This relationship conforms to apriori expectations. The relationship between the Money supply and capital out ows in Nigeria is positive in the current period as well as the one year lagged period. This implies that as the Money supply increases, capital out ows also increase. However, in the second lag period, the relationship between the Money supply and capital out ows in Nigeria is negative and insigni cant.  The results showed that the model is a good t given its R squared value of 0.782309 for the joint signi cance of the model, the probability value of the F statistic indicates that all the independent variables used for this study signi cantly determine capital in ows in Ghana. Also, the value of the Durbin Watson statistic which is greater than the value of the R squared indicates the absence of autocorrelation. The ECM coe cient of -0.964828 and its corresponding probability value of 0.0108 conforms to apriori expectations where the ECM is expected to be negative and statistically signi cant at the 5 per cent level of signi cance. The ECM coe cient implies that the speed of adjustment to long run equilibrium is about 96 per cent which is quick.
From the result above, capital out ow in the lagged period had a negative and signi cant relationship with capital out ows in Ghana. Exchange rate has a negative relationship with capital out ows in Ghana in the current period as well as the second period lag. This implies that as exchange rate depreciates, capital out ows decreases. This relationship does not conform to apriori expectations. In the rst period lag, the relationship between exchange rate and capital out ows is however positive and signi cant which conforms to apriori expectations. Government expenditure in the current period has a positive but insigni cant relationship with capital out ows indicating that an increase in government expenditure by one per cent will cause capital out ows to also increase by about 135 per cent. In the lagged period, government expenditure has a negative relationship with capital out ows in Ghana indicating that a one per cent increase in government expenditure in the lagged period will lead to a decline in capital out ow by about 93 per cent. This relationship conforms to apriori expectations in the lagged period. In the current period, globalization has a positive and signi cant relationship with capital out ows in Ghana.
This means that as the degree of globalization increases, capital out ow also increases. This relationship conforms to apriori expectations and can be explained that capital out ow also increases because  While testing for normality problem, the Jarque -Bera normality test was used and the result showed a Pvalue of 0.009546 which is less than 0.05. This implies that the model is not normally distributed. The Breusch-Godfrey Serial Correlation LM Test result has a P-value of 0.7726 which is greater than 0.05 thereby signifying that the residuals are not serially correlated and nally, the Breusch-Godfrey Hetereskodasticity reveals the absence of hetereskodasticity in the model given its associated p-value of 0.1506 which is greater than 0.05. In order to test for normality, the Jarque -Bera normality test was used and the result showed a P-value of 0.000000 which is less than 0.05. This implies that the model is not normally distributed. The Breusch-Godfrey Serial Correlation LM Test result has a P-value of 0.0911which is greater than 0.05 thereby signifying that the residuals are not serially correlated and nally, the Breusch-Godfrey Hetereskodasticity reveals the absence of hetereskodasticity in the model given its associated p-value of 0.9830 which is greater than 0.05.

Conclusion
This study focused on examining the effect of globalization on capital ows (capital in ows and capital out ows) in two selected West African countries which are Nigeria and Ghana. The study found out that in the short run in Nigeria, globalization has a negative relationship with capital in ows in the current year. This means that as globalization improves in the current year, capital in ows which consist of foreign direct invest declines. This relationship does not conform to apriori expectations and can be attributed to the fact that corruption and political instability exists in the Nigerian system thereby discouraging capital in ow. In the one period lag however, globalization has a positive relationship with capital in ows. In the case of capital out ows, globalization has a positive relationship with capital out ows in Nigeria. This also can be attributed to the fact that globalization has encouraged investment in other countries asides Nigeria which then leads to capital out ows for the purpose of investment in those countries.
In Ghana, globalization has a positive relationship with capital in ows indicating that as globalization improves in the country, capital in ows increase. The reason for this is due to the fact that the business environment or other political factors does not affect the easy ow of funds into the country. Capital out ow in the current period has a positive relationship with globalization in Ghana. This implies that as globalization increases, capital out ow also increases. Again, this can be attributed to the fact that globalization has also encouraged investment in other countries asides Ghana which then leads to capital out ows for the purpose of investment in those countries. In the one period lag however, the relationship is negative, implying that as globalization improves, capital out ow decline.

Recommendations
The following recommendations were made as regards Nigeria; The negative relationship between globalization and capital in ows is caused by the uncondusive business environment in Nigeria. The business environment in Nigeria should be well developed so as to encourage both local and foreign investors.
Also, macroeconomic stability especially exchange rate stability should be achieved. A stable exchange rate regime or system helps to encourage foreign investors and protect the value of the local currency.
Corruption should be tackled. Institutions that have been set up by the government to tackle corruption in the country should be given the right to act independently and should also be funded to ensure e ciency in carrying out their duties. This will help to encourage the ow of capital into the country.
An enabling environment will also help to reduce the amount of capital out ows in the country. Most investors prefer to carry out their business in other countries because the Nigerian business environment is not conducive enough for them to engage in business activities in. It is therefore very important for the government to provide an enabling environment to help increase the ow of capital into the country and also to help reduce capital ight.
Efforts need to be taken by government and policy makers to boost the performance of the all sectors negatively impacted by globalization. Economic diversi cation in the oil sector which is the largest contributor to GDP in recent time in the country should be encouraged and other sectors such as the manufacturing, agriculture and solid minerals sectors should be invested in.
The government should determine the optimal capital in ow that would propel investment and growth in the country and so, government and policy-makers need to attract more in ow of foreign capital into the country while also considering the detrimental effect of huge capital in ow into the Nigerian economy.
In Ghana however, the following recommendations were proposed by the researcher; Since globalization has a positive relationship with capital in ows in Ghana, it is important for the Ghanaian government to ensure that the enabling business environment in Ghana is maintained.
This will further encourage capital in ows into the economy which will then lead to an increase in economic growth.
Likewise in Ghana, an enabling environment will also help to reduce the amount of capital out ows in the country as most investors prefer to carry out their business in other countries where the business environment is conducive enough for them to engage in business activities in.
Sound, robust and vigorous economic policies should be formulated with the sole purpose of attracting and drawing capital ows into the country that helps to bridge the needed capital for economic growth and development in Ghana.
Generally, the issue of insecurity and policy inconsistency so as to allow the free ow of capital into both countries is very important. Also, the government needs to implement policies that will promote domestic investment and discourage capital ight from both countries. The Nigerian and Ghanaian government should undertake policy measures and reforms that will help in providing sound macroeconomic policies which will create a more stable and conducive environment for investment and the expansion of economic activity to ensure that capital in ow impacts positively on the economic growth of both countries. Competitive economic environments that will be attractive to foreign investors are essential in maximizing the bene ts from capital in ows in Nigeria and Ghana. Appropriate monitoring commissions should be set up to ensure judicious use of credit and funds from abroad and available foreign currencies for uses that are bene cial to the economy. Government should create an enabling environment to encourage more in ow of funds from abroad. Also, there should be an intensi cation of government efforts in its anti-corruption campaign as this will improve the country's image and attract in ow of funds from abroad for investment purposes in Nigeria and Ghana.