Journal of Investment and Management

| Peer-Reviewed |

Financial Market Development and Capital Inflows in Nigeria: The Role of Stock Market Development

Received: 29 July 2015    Accepted: 13 August 2015    Published: 16 October 2015
Views:       Downloads:

Share This Article

Abstract

This study investigated the relationship between capital inflows and stock market development in Nigeria for the period spanning 1986 to 2013. Capital inflow was proxied by foreign direct investment and foreign portfolio investment while stock market development was proxied by market capitalization, turnover ratio and value traded ratio. The study employed error correction modelling techniques. From the regression estimate, it was shown that only market capitalization and value traded ratio had significant influence on foreign portfolio investment while none of the measures of stock market development significantly influenced foreign direct investment in the long run in Nigeria. The short run estimate showed that among the three measures of stock market development only market capitalization influenced both foreign direct investment and foreign portfolio investment while value traded ratio only had significant influenced on foreign direct investment in the short run. The study concluded that stock market development had not significantly promoted the inflows of foreign capital inflow in Nigeria.

DOI 10.11648/j.jim.20150406.21
Published in Journal of Investment and Management (Volume 4, Issue 6, December 2015)
Page(s) 369-376
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Market Capitalization, Turnover Ratio, Value Traded Ratio, Foreign Direct Investment, Foreign Portfolio Investment, ECM, Nigeria

References
[1] Adam, A. M., & Tweneboah, G. (2008). Foreign direct investment (FDI) and stock market development: Ghana evidence. MPRA Paper No.11985.
[2] Adenuga, A. O. (2011). Stock market development and economic growth in Nigeria: a vector error-correction approach. West African Journal of Monetary and Economic Integration, 11(1), pp.95-124.
[3] Al Nasser, O. M., & Soydemir, G. (2010). Domestic and international determinants of foreign direct investment in Latin America. FMA Annual Meeting, New York, USA.
[4] Blackburn, K., Bose, N., & Capasso, S. (2005).Financial development, financing choice and economic growth. Review of Development Economics, 9(2), 135-149.
[5] Blonigen, B. (2005). A Review of the Empirical Literature on FDI Determinants, NBER Working Paper No. 11299.
[6] Boyd, J., & Prescott, E. C. (1986). Financial Intermediary Coalitions. Journal of Economic Theory, 38, pp. 211-232.
[7] Boyd, J., & Smith, B. (1998). The Co-evolution of the Real and Financial Sectors in the Growth Process. The World Bank Economic Review, Vol. 10 No.2, 371-396.
[8] Brasoveanu, L. O., Dragota, V., Catarama, D., & Semenescu, A. (2008). Correlations between Capital Market Development and Economic Growth. The Case of Romania. Journal of Applied Quantitative Methods. 3(1), pp. 64-75.
[9] Chauhan, S. (2013). Impact of Foreign Capital Inflows on Indian Stock Market, TRANS Asian Journal of Marketing & Management Research, 2(3-4), pp.79-90.
[10] Dailami, M., & Aktin, M. (1990). “Stock markets in developing countries: key issues and a research agenda”. Policy Research and External Affairs Working Papers Series, No. 515. Financial Policy Systems, the World Bank.
[11] De-Paula, L. F., Ferrari-Filho, F., & Gomes, A. M. (2012). Capital flows, international imbalances and economic policies in Latin America, Retrieved on January 13, 2013 from http://www.ufrgs.br/PPGE/pcientifica/2012_12.pdf.
[12] Ewe-Ghee, L. (2001). Determinants of and the relation between, foreign direct investment and growth: a summary of the recent literature, IMF Working paper, WP/01/175.
[13] Greenwood, J., & Smith, B. (1996). Financial markets in development and the development of financial markets. Journal of Economic Dynamics and Control, 21, 145-181.
[14] Hau, H., & Rey, H. (2006). Exchange Rates, Equity Prices and Capital Flows, The Review of Financial Studies, 19(1), pp. 273-317.
[15] Kaleem, R., & Shahbaz, M. (2009). Impact of Foreign Direct Investment on Stock Market Development: The Case of Pakistan. 9th Global Conference on Business and Economics, Cambridge University, Uk.
[16] Kim, S., &Yang, D. Y. (2008). The Impact of Capital Inflows on Asset Prices in Emerging Asian Economies: Is Too Much Money Chasing Too Little Good? Working Paper Series On Regional Economic Integration Asian Development Bank (ADB) No. 15.
[17] Kumar, N. (2010). Capital flows and development: lessons from South Asian experiences, Macroeconomic Policy and Development Division (MPDD) Working Paper Series, WP/10/11.
[18] Kohli, R. (2003). Capital Flows and Domestic Financial Sector in India, Economic and Political Weekly, February 22, pp. 761-767.
[19] Lamouchi, A., & Zouari, E. (2013). Financial Development and Capital Inflows: The effect on the real exchange rate, Global Journal of Management and Business Research Finance, 13(3), pp. 30-42.
[20] Levine, R., & Zervos, S. (1998). Stock Market, Bank and Economic growth: American Economic Review 88(3), 537-558.
[21] Ndikumana, L. (2003). Capital Flows, Capital Account Regimes, and Foreign Exchange Rate Regimes in Africa. Working Paper Series No. 55, Political Economy Research Institute (PERI), University of Massachusetts Amherst.
[22] Nnanna J. O. (2002). Monetary Policy and Exchange rate Stability: A general overview: Proceedings of Nigeria Economic Society’s One-day seminar held Lagos.
[23] Nyang`oro, O. (2013). Foreign Portfolio Flows and Stock Market Performance in Kenya: Case of Nairobi Securities Exchange, An extracted from my thesis submitted to the University of Nairobi, Kenya.
[24] Nyong, M. O. (1997). Capital market development and long-run economic growth: theory, evidence and analysis. First Bank Review, December, pp.13-38.
[25] Obida, G. W., & Abu, N. (2010). Determinants of foreign direct investment in Nigeria: an empirical analysis, Global Journal of Human Social Sciences, 10(1), 26-34.
[26] Oke, M. O. (2012). Foreign Direct Investment and the Nigerian Financial Sector Growth, Asian Economic and Financial Review, 2(2), pp.262-275.
[27] Osinubi, T. S., & Amaghionyeodiwe, L. A. (2003). Stock Market Development and Long-run Growth in Nigeria, Journal of African Business, 4(3): 103-129.
[28] Otchere, I., Soumare, I., &Yourougou, P. (2011). “FID and financial market development in Africa” [On line] Available at: http://www.uneca.org/sites/default/files/page_attachments/soumare_and_otcherel-fdi_and_financial_market_development_in_africa_0.pdf [Retrieved September 28, 2013].
[29] Ötker-Robe, İ., Polański, Z., Topf, B., & Vávra, D. (2007). Coping with Capital Inflows: Experiences of Selected European Countries, IMF Working Paper, WP/07/190.
[30] Oyejide T. A. (2002). Monetary Policy and its Effects on the Nigerian Economy: Proceedings of Nigeria Economic Society’s One-day seminar held Lagos.
[31] Sanusi J. O. (2002). “Central Bank and the Macroeconomics’ Environment in Nigeria”. A Lecture Delivered at Senior Executive course No 24 Institute for Policy and Strategy Studies.
[32] Solarin, S. A. (2011). “Financial development and economic growth: the role of stock markets and banking sector in Nigeria”. Journal of Sustainable Development in Africa, 13(7), pp. 96-113.
[33] Singh, A., & Weisse, B. A. (1998). Emerging Stock Markets, Portfolio Capital Flows and Long-term Economic Growth: Micro and Macroeconomic Perspectives, World Development Vol. 26(4), pp.607-622.
[34] Stiglitz, J. E. (1985). Credit Markets and the Control of Capital, Journal of Money, Credit and Banking, 71, pp.324-376.
[35] Syed, A. R., Syed, T. J., & Sahar, A. (2013) Is Stock Market Sensitive to Foreign Capital Inflows and Economic Growth? Evidence from Pakistan, MPRA paper No. 48399.
[36] Vagias, D., & van Dijk, M. A. (2011). International Capital Flows and Liquidity. [Online] Available at: http://ssrn.com/abstract=1571858 [Retrieved September 28, 2013].
[37] Walsh, J. P., & Yu, J. (2010). Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach, IMF Working Paper, Asia Pacific Department, WP/10/187.
[38] WIDER (1990). Foreign Portfolio investment in Emerging Equity Markets. Study Group Series, No. 5, WIDER. Helsinki.
[39] Zafar, M. (2013). Determinants of Stock Market Performance in Pakistan, Interdisciplinary Journal of Contemporary Research in Business, 4(9), pp.1017-1026.
Author Information
  • Department of Economics, Accounting and Finance College of Management Sciences, Bells University of Technology, Ota, Ogun State, Nigeria

Cite This Article
  • APA Style

    Nwosa Philip Ifeakachukwu. (2015). Financial Market Development and Capital Inflows in Nigeria: The Role of Stock Market Development. Journal of Investment and Management, 4(6), 369-376. https://doi.org/10.11648/j.jim.20150406.21

    Copy | Download

    ACS Style

    Nwosa Philip Ifeakachukwu. Financial Market Development and Capital Inflows in Nigeria: The Role of Stock Market Development. J. Invest. Manag. 2015, 4(6), 369-376. doi: 10.11648/j.jim.20150406.21

    Copy | Download

    AMA Style

    Nwosa Philip Ifeakachukwu. Financial Market Development and Capital Inflows in Nigeria: The Role of Stock Market Development. J Invest Manag. 2015;4(6):369-376. doi: 10.11648/j.jim.20150406.21

    Copy | Download

  • @article{10.11648/j.jim.20150406.21,
      author = {Nwosa Philip Ifeakachukwu},
      title = {Financial Market Development and Capital Inflows in Nigeria: The Role of Stock Market Development},
      journal = {Journal of Investment and Management},
      volume = {4},
      number = {6},
      pages = {369-376},
      doi = {10.11648/j.jim.20150406.21},
      url = {https://doi.org/10.11648/j.jim.20150406.21},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.jim.20150406.21},
      abstract = {This study investigated the relationship between capital inflows and stock market development in Nigeria for the period spanning 1986 to 2013. Capital inflow was proxied by foreign direct investment and foreign portfolio investment while stock market development was proxied by market capitalization, turnover ratio and value traded ratio. The study employed error correction modelling techniques. From the regression estimate, it was shown that only market capitalization and value traded ratio had significant influence on foreign portfolio investment while none of the measures of stock market development significantly influenced foreign direct investment in the long run in Nigeria. The short run estimate showed that among the three measures of stock market development only market capitalization influenced both foreign direct investment and foreign portfolio investment while value traded ratio only had significant influenced on foreign direct investment in the short run. The study concluded that stock market development had not significantly promoted the inflows of foreign capital inflow in Nigeria.},
     year = {2015}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Financial Market Development and Capital Inflows in Nigeria: The Role of Stock Market Development
    AU  - Nwosa Philip Ifeakachukwu
    Y1  - 2015/10/16
    PY  - 2015
    N1  - https://doi.org/10.11648/j.jim.20150406.21
    DO  - 10.11648/j.jim.20150406.21
    T2  - Journal of Investment and Management
    JF  - Journal of Investment and Management
    JO  - Journal of Investment and Management
    SP  - 369
    EP  - 376
    PB  - Science Publishing Group
    SN  - 2328-7721
    UR  - https://doi.org/10.11648/j.jim.20150406.21
    AB  - This study investigated the relationship between capital inflows and stock market development in Nigeria for the period spanning 1986 to 2013. Capital inflow was proxied by foreign direct investment and foreign portfolio investment while stock market development was proxied by market capitalization, turnover ratio and value traded ratio. The study employed error correction modelling techniques. From the regression estimate, it was shown that only market capitalization and value traded ratio had significant influence on foreign portfolio investment while none of the measures of stock market development significantly influenced foreign direct investment in the long run in Nigeria. The short run estimate showed that among the three measures of stock market development only market capitalization influenced both foreign direct investment and foreign portfolio investment while value traded ratio only had significant influenced on foreign direct investment in the short run. The study concluded that stock market development had not significantly promoted the inflows of foreign capital inflow in Nigeria.
    VL  - 4
    IS  - 6
    ER  - 

    Copy | Download

  • Sections