EMPIRICAL INVESTIGATION OF THE EFFECT OF FOREIGN PORTFOLIO INVESTMENT ON ECONOMIC DEVELOPMENT IN NIGERIA

Abstract

This study examined the effect of foreign portfolio investment on economic development in Nigeria using annual time-series data spanning 1995–2024. Economic development was proxied by the Human Development Index, while foreign portfolio investment constituted the main explanatory variable alongside foreign direct investment, remittances, money supply, inflation rate, exchange rate, and interest rate as control variables. An ex post facto research design was adopted, and the Autoregressive Distributed Lag (ARDL) approach was employed to capture both long-run and short-run dynamics.

Descriptive statistics, unit root tests, and ARDL bounds testing were conducted to establish the time-series properties and long-run relationships among the variables. The results revealed the existence of a stable long-run relationship between economic development and its determinants. Foreign portfolio investment exerted a positive and statistically significant effect on economic development in both the long run and short run, while foreign direct investment, remittances, and money supply also supported development outcomes. In contrast, inflation, exchange rate depreciation, and interest rate adversely affected economic development. Based on these findings, the study recommended the adoption of policies aimed at stabilizing foreign portfolio inflows, strengthening capital market regulation, maintaining macroeconomic stability, and promoting financial deepening to enhance domestic absorptive capacity. The study concluded that foreign portfolio investment could contribute meaningfully to economic development in Nigeria when supported by stable macroeconomic and institutional frameworks.