International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Foreign Portfolio Investment and Economic Growth in Nigeria (1986-2011)
Baghebo, Michael; Apere, Thankgod O

This study tries to ascertain the impact of foreign portfolio investment (FPI) on economic growth as well as the long run determinants of FPI in Nigeria, such that appropriate policies will be pursued to attract same in the long run. FPI has grown recently in proportion relative to other types of capital inflows to Nigeria before the wake of global financial crisis. Incidentally, there is no empirical regularity regarding the determinants of FPI. Hence the study added to knowledge by modeling the long-run impacts of foreign portfolio investment as well as other determinants of FPI on economic growth in Nigeria over the period 1986-2011. A three stage methodological process was adopted; one was to check the stationary status of the variables using Augmented Dickey Fuller Unit Root test, which confirmed that the variables had unit root problems, the second was to check for the possibility of a long run relationship using Johansen co-integration test; the third was the parsimonious error correction result. The variables considered are foreign portfolio investment, inflation rate, market capitalization, trade openness. It discovers that foreign portfolio investment; market capitalization and trade openness has a positive long-run relationship with real gross domestic product in Nigeria. Ongoing efforts therefore to sanitize the capital market should be vigorously pursued .It recommended that authorities should look for ways of strengthening the workings of the capital market against fraudulence to ensure the free flow of foreign capital into the economy as this would boost domestic investment. Policies should be business friendly and inflation should actively be controlled in the economy.

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