Foreign Portfolio Investment and Nigerian Economic Growth

Abstract

The study evaluated the nature and impact of foreign portfolio Investment on Nigerian economic growth using time series data, econometric techniques like ADF Unit Root Test, Granger Causality test and ARDL Bound test were employed. Nigeria’s real gross domestic product was modeled as the function of foreign equity investment and bond investment. The unit root test indicates that two variables are stationary at difference while the remaining is stationary at level. The Granger causality test result shows that there is no causal relationship between foreign portfolio investment and economic growth. The cointegration bound test, for long run relationship, indicated that there is long run relationship between foreign portfolio investment and economic growth at 1%, 5% and 10% levels of statistical significance. The error correction term (ECM-1) was significant with correct negative sign. The long-run regression of the ARDL model shows that increase in foreign equity investment is associated with increase in real gross domestic product of Nigeria while increase in foreign bond investment is associated with negative effect on Nigeria economic growth. The study concluded that there is a long run positive relationship between foreign equity investment but negative long run relationship between foreign bond investment and economic growth in Nigeria. The study therefore recommends that government provide a sound macroeconomic policy that ensures proper utilization of foreign investment, in addition to comprehensive adjustment of macroeconomic policies to achieve and maximize the expected positive impact of foreign portfolio investment on Nigerian economic growth.

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