European Journal of Accounting, Auditing and Finance Research Vol.4, No.3, pp.16-26, March 2016 ___Published by European Centre for Research Training and Development UK (www.eajournals.org) 16 ISSN 2054-6319 (Print), ISSN 2054-6327(online) FOREIGN CAPITAL INFLOWS AND NIGERIAN ECONOMIC GROWTH NEXUS: A TODA YAMAMOTO APPROACH I. G. Okafor, Ugwuegbe S. Ugochukwu, and Ezeaku Hillary Chijindu Department of Banking and Finance, Caritas University, Amoji-Nike, Emene Enugu, Nigeria. ABSTRACT: This study investigated the relationship between foreign capital inflows and economic growth in Nigeria for the period of 1981-2014. In this study, foreign capital inflows were proxied by Foreign Direct Investment, Foreign Portfolio Investment and Foreign Aid while economic growth was proxied by Gross Domestic Product (GDP). The study employed annual data generated from CBN statistical bulletin, and Toda Yamamoto test of causality was used to determine the relationship between foreign capital inflow and economic growth in Nigeria. The result revealed that there is bi-directional causality running from GDP to FDI as well as from FDI to GDP. It also indicates that there is a unidirectional causality between FPI and GDP with causation running from FPI to GDP. Furthermore, the result showed a unidirectional causality between GDP and FA with causation running from FA to GDP. Finally the joint causation between all the components of foreign capital inflow i.e. FDI, FPI, FA and GDP indicates that increase in foreign capital inflow causes GDP to increase positively. And so, government should design policies and programs to enhance the inflows of foreign capital as the will accelerate the speed of growth in the economy. KEYWORD: Foreign Capital Inflows, Toda Yamamoto, Economic Growth. INTRODUCTION In recent time, finance and economic literatures have sought to ascertain the determinants of growth, especially in the emerging and developing economies of the world. Quite a number of the studies have come to discover that there exist a positive and direct relationship between growth and the various indicators of external capital inflow. Jointly, these indicators, among other factors, translate into economic growth, boost the development process, and improve standard of living of the citizenry if properly harnessed. It is evident that developing countries make concerted efforts to stimulate growth by tapping into such economic opportunities and harnessing them in order to foster sustained growth and overall welfare, and development. Hence, it is widely acknowledged that nations formulate and implement policies that will encourage the smooth inflow of capital as well as creating a conducive environment for its growth and viability. Due to the dynamism of the core economic underpinnings, modern methods are continuously being explored to attain these goals. One of the measures is to open the trade among nations and accelerate the smooth flow of foreign direct investment. However, it will be remiss not to emphasize that stable economic and political environment in a host country go a long way in attracting the inflow of foreign direct investment (Ramzan and Kiani, 2012). Shafi, (2014) maintains that, besides researchers, the link between foreign direct investment and economic growth has also been broadly examined by practitioners and policy-makers. Various views emanating from such studies are based on the neoclassical theory or on new theory of economic growth, which is an economic theory founded on absolute optimism and progressive line of thought (Wan, 2010). Researchers and policymakers generally agree that FDI promotes