Modelling the Long Run Determinants of Foreign Portfolio Investment in Nigeria

Abstract

This study tries to ascertain the long run determinants of foreign portfolio investment (FPI) in Nigeria such thatappropriate policies will be pursued to attract same in the long run. FPI has grown recently in proportion relative toother types of capital inflows to Nigeria before the wake of global financial crisis. Incidentally, there is no empiricalregularity regarding the determinants of FPI. This study tries to add to the stock of knowledge by modelling thelong-run determinants of FPI in Nigeria over the period of 1981-2010 converted into quarterly series. The variablesconsidered are, market capitalization, real exchange rate, real interest rate, real gross domestic product and tradeopenness. The study applies time series analysis specifically the finite distributed lag model and discovers that FPIhas a positive long-run relationship with market capitalization, and trade openness in Nigeria. Ongoing effortstherefore to sanitize the capital market should be vigorously pursued.

Keywords: Nigeria, Foreign Portfolio Investment, macroeconomic variables.