Nigerian Journal of Banking and Financial Issues (NJBFI)

Impact Of Foreign Direct Investment On Capital Market Capitalization In Nigeria

Abstract

The study investigates the impact of foreign direct investment on capital market capitalization in Nigeria. It makes use of secondary data spanning through 34 years (1986-2020). The study employed ordinary least square (OLS), Johansen co-integration and Error correction model. The result of the study revealed that all variables except FDI maintain positive/direct relationship with the dependent variable (MC). The long run model revealed that only money supply (M2) was negatively related to market capitalization (MC) while the remaining variables (FDI, SPI and INF) maintained positive relationship with market capitalization (MC). From the short-run analysis, the R² revealed that the short-run model which envelopes (FDI, INF, SPI and M2) account for 97% of the changes that occur in market capitalization (MC), while the remaining 3% is accounted for by other unexplained variables outside the research model. Meanwhile, the R² of the over-parameterized ECM model is 0.963946≈0.96. This implies that in the long run, about 96% of the slight difference of MC explained by all the exogenous variables together with the lagged variables. Based on the findings, the study showed that there are short-run and long-run relationships between the dependent and the independent variables. Therefore, the study recommended that since foreign direct investment is a significant determinant, efforts should be made by government and monetary authority to encourage foreign direct investment into Nigeria.