Dynamic Effects of Foreign Portfolio Investment on Economic Growth in Nigeria

The slow growth rate and the deficit of full-fledged financial security have created the preconditions for studying the relationship between foreign investment and economic growth. In previous literature, key emphases on this issue were studied in the short term and in terms of static functioning of the economy. Thus, this article purposely studied the dynamic nature of the development of the relationship between foreign investment and economic growth in Nigeria from 1980 to 2018. The use of the Augmented-Dickey Fuller test confirmed the precondition for adopting dynamic techniques to test the significant role of foreign portfolio investment (among other analyzed factors – domestic savings, government capital expenditures, market capitalization) in the formation of gross domestic product. The use of the lag selection method allowed to determine the optimal lag for estimating the autoregressive distributed model, which substantiates the effectiveness and reliability of the autoregressive distributed lag model. The information base of the study was the statistical bulletin of the Central Bank of Nigeria. The results of empirical estimations in the short term showed that domestic savings had significant and negative impact on gross domestic product. The study empirically confirms and theoretically proves that foreign investment, domestic savings, government spending and market capitalization determine long-term trends in gross domestic product formation in Nigeria. Practically, the empirical result revealed that the presence of a significant deficit of domestic savings in Nigeria creates obstacles to successful economic growth in the country both in the short and long term; portfolio foreign investment accelerates economic growth in the long run to a greater extent than in the short run.