Threshold level of Banking Sector Development for controlling Capital Inflow Volatility in Nigeria

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Abstract

Evidence has shown that capital inflows volatility is higher in developing countries than in developed ones; it is unpredictable and persistent. Also, the banking sector is one of the factors advocated to check the capital inflows volatility as such, capital inflow 
becomes less volatile if countries have reached certain threshold in their financial. However, evidence is lacking on the threshold of banking sector development in checking capital inflow volatility in Nigeria leading to the investigation in Nigeria. Data from the Central Bank of Nigeria for 2016 based on a monthly time series, between January 2008 and December 2014 was employed for this study. After obtaining the volatility measure of the variables, a threshold regression model was drawn to estimate the threshold level of banking sector development that will check capital inflows volatility in Nigeria. It was concluded that the threshold level of 
banking sector development that checks capital inflows volatility is observed for banking sector access to be between 10 to 14, banking sector depth is between 65 to 70, banking sector efficiency is between 6 to 11 while, the level of banking sector 
stability is inconclusive, implying that there is much to be done in the stability of the Nigerian banking sector so as to check foreign capital inflows volatility.