Autoregressive Distributed Lag (ARDL) Bounds Cointegration and Short-Run Analysis of the Impact of Capital Inflows and Institutional Quality on Labour Productivity

Abstract

This study uses the Solow-Swan model to link labour productivity with capital, labour, and technology. It applies the ARDL approach to examine how international capital inflows affect productivity in Nigeria, including FDI, FPI, debt, aid, and remittances, with control variables. Cointegration and ECM capture long- and short-run dynamics. Institutional quality is included as a moderator. Robustness is ensured with FMOLS and diagnostic tests using 1992–2024 time-series data from multiple sources. Short-run results show that FDI (-0.0012) was insignificant, while FPI (0.0000), ODA (0.1632), external debt (0.3852), and institutional quality (0.5131) significantly influenced labour productivity. The error correction term (-1.1137) confirms rapid adjustment to long-run equilibrium. The findings suggest that while international capital inflows are important drivers of productivity, their effectiveness depends largely on the quality of institutions. The study recommends strengthening governance structures, improving regulatory efficiency, and ensuring effective allocation of external resources to maximize productivity gains and support sustainable economic growth in Nigeria.