Foreign Portfolio Investments and Economic Performance of Nigeria

Abstract

The study verifies the theoretical literature of Osaze (2011) that opined that foreign portfolio investments (FPI) destabilize Nigeria economy. It specifically employed time series data for the period 1986-2015 sourced from Central Bank of Nigeria (C.B.N) bulletin and World Bank  analyzed with Error Correction Model (ECM), Ordinary least square and correlation techniques to determine whether FPI stimulate or destabilize economic performance of Nigeria. Based on the results generated by the analyses, at short run, FPI with t-statistics of -4.225760 significantly and negatively impact the economic performance of Nigeria unlike stock Market Development with t- statistics of 3.947143 and Capital formation 10.97692 with t- statistics of 2.389578 that significantly and positively impact economic performance of Nigeria at the short run.  The results of long run Ordinary Least squares (OLS) also confirm that, FPI with t-statistics -0.726212 negatively impact economic performance of Nigeria though not significant unlike the stock market development with t- statistics of 3.815102 and capital formation with t- statistics of 3.823441 that significantly and positively impact on economic performance of Nigeria at the long run. On this basis of these findings, the study concluded that FPI poises threat to Nigeria economy, partly because it more amenable to sudden withdrawing.  Against this high negative volatility associated with it, policy makers must devise strategies to reap the benefits of financial integration while managing the capital risks posed by FPI on the domestic economy. This can be done by develop strong institutions to attract other components of foreign resources increase the dwelling foreign services and augments capital formations imperative to resuscitate the declining performance of the economics.

Keywords: Portfolio Investment, Economic performance, Gross Domestic Product, Capital formation, Error Correction Model