Foreign Capital Outflows and Stock Market Performance in Nigeria

ABSTRACT

The study investigated the relationship between foreign capital outflows and stock market performance in Nigeria for the period 1986 to 2021. The sub-objectives of the study were to examine how foreign direct investments outflow, foreign portfolio investments outflow, foreign remittances outflow, official development assistance outflow, interest rate and inflation rate affected stock market performances in Nigeria. In pursuance of the above, the variable properties were described and summarized in a convenient form using descriptive statistic; the presence of multi-collinearity between exogenous variable was ascertained with correlation analysis. The study employed the autoregressive distributed lags for the analysis of data. The results from the analysis showed that, foreign direct investments outflow and other development assistance outflow have significant negative relationship with stock market performance in Nigeria; while foreign portfolio investments outflow and interest rate has a weak positive relationship with stock market performance in Nigeria. However, inflation rate does not have any significant impact on stock market performance in Nigeria. The study therefore recommend among others that, there is need to improve the investment climate in Nigeria because, one of the major factors that promotes foreign capital outflow is the risky investment climate. This can be done by formulating deliberate investment policies to strengthen the productivity of the monetary system especially the financial market which main goal is to move funds from the surplus unit of the economy to its deficit unit. This will definitely go a long way to discourage huge capital flight in the country. Also, policies that will discourage capital outflow in the form of remittances outflow, such as capping the repatriation of a proportion of domestic earnings to reduce financial constraints, strengthen investment domestically as well as increase tax revenue, should be vigorously pursued by policy makers and the government.