Foreign Portfolio Investment and Economic Growth in Nigeria Democratic Settings

Abstract

The study examined the relationship between foreign portfolio investment, democracy and economic growth in Nigeria. This was with a view to explore the nexus between foreign portfolio investment, democracy and economic growth in Nigeria.Secondary data were used in this study. Annual time-series data for the period 1986 to 2013 on foreign portfolio investment and maximum lending rate were obtained from Central Bank of Nigeria (CBN) Statistical Bulletin, while data on variables such as GDP growth rate and gross domestic savings were obtained from World Development Indicators (WDI) database, published by the World Bank. Data collected were analyzed with both descriptive statistics and econometric techniques. Time series properties of the variables were examined using both Augmented Dickey Fuller and Phillip Peron tests. Cointegration properties of the variables were also examined. Vector Auto-Regressive technique supported by Variance Decomposition and Impulse Response analysis were employed to empirically determine the relationship between foreign portfolio investment                                                                                                                                                                                            and economic growth in Nigeria. The results showed that foreign portfolio investment inflow was more stable in democratic periods between 1999 and 2013 than the military periods between 1986 and 1998 and that the correlation between economic growth and foreign portfolio investment is positive and very significant. The result showed that in the longrun foreign portfolio investment had positive and significant effect on the economic growth in Nigeria (t = 3.7, p < 0.05).it also showed that democracy had a positive and significant effect on economic growth (t = 2.7, p < 0.05), while it has positive but not significant effect on the relationship between foreign portfolio investment and economic growth (t = 1.92, p >0.05). This study therefore concluded; the impact of foreign portfolio investment on economic growth was very large and significant in the longrun; that democracy in itself affected economic growth significantly and positively but democratic government had no significant effect on the relationship between foreign portfolio and economic growth;.

Keywords: Democracy, Foreign Portfolio Investment, Economic Growth:

JEL CODES; F02, F3 O10,