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THE PLACE OF FOREIGN CAPITAL FLOWS IN THE NIGERIAN ECONOMIC GROWTH EQUATION: EVIDENCE FROM FOREIGN PORTFOLIO INVESTMENT
ABSTRACT
The registered increase in Foreign Portfolio Investment (FPI) in recent years has elicited intense controversy about its implications on the Nigerian economy. While proponents emphasize its positive spillover effects, critics express concern about its volatility and the economy’s vulnerability to its inflows. This study therefore attempts to ascertain the impact of the phenomenon on economic growth. In so doing, relevant literature was reviewed and the Impact Assessment Model was adopted using Nigerian data. To avoid spuriousity of the regression result, time series properties of non-stationary data were conducted and the Engle-Granger result reveals the presence of co-integration which justified the use of an Error Correction Model (ECM). The result displays an astounding revelation. Not only that domestic investment is not statistically different from zero, openness possesses a negative value. Whether Nigeria is opening up too much in the direction that undermines the health and wellbeing of the economy is another subject issue. Interestingly, the result revealed that FPI has a positive relationship with the growth rate of real non-oil GDP. Based on the results, government should put in place appropriate policies that will boost continuous inflow of foreign portfolio investment in Nigeria.
Keywords: Foreign Portfolio Investment, Capital Inflows, Trade Openness, Economic Growth, Nigeria