FOREIGN DIRECT INVESTMENT AND CAPITAL MARKET DEVELOPMENT IN NIGERIA

Abstract

This study examined the effect of foreign direct investment components—Equity Capital and Net Inflows—on capital market development in Nigeria between 1972 and 2023. The study was guided by two research questions, objectives, and hypotheses. Key concepts explored include foreign direct investment and market capitalization as a measure of capital market development. A comprehensive review of relevant empirical literature was conducted to highlight existing findings on the relationship between selected FDI inflows and capital market performance. The study was anchored on three theoretical frameworks: the Neoclassical Theory of Investment, the Endogenous Growth Theory, and the Financial Market Theory. An ex-post facto research design was adopted due to the historical nature of the data. The study employed time series data obtained from secondary sources, specifically the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS) Statistical Bulletins. Market Capitalization served as the dependent variable, while Equity Capital and Net Inflows represented the independent variables. Data analysis involved the use of descriptive statistics, correlation analysis, and multiple regression via Ordinary Least Squares (OLS) techniques. The findings revealed that both Equity Capital and Net Inflows significantly influenced Market Capitalization over the study period. Based on the results, it was recommended that policymakers should implement strategies to attract sustainable equity investments and improve the net inflow of foreign capital as a means of deepening capital market development in Nigeria.