CHAPTER ONE

INTRODUCTION
1.1 Background Information to the Study
Foreign Direct Investment (FDI) is intricate and ever-changing, embodying the essence of
globalisation and the interconnectedness of contemporary economies. FDI denotes investments
made by individuals or entities from one country (referred to as the home country) into
businesses or assets situated in another Country (Commonly Termed The Host Country) The
Primary Objective Of Such Investments Is Usually To Establish a lasting interest or wield a
significant level of influence or control over the foreign business or assets. Foreign direct
investment (FDI) manifests in diverse forms, encompassing initiatives such as green investments
and real estate ventures by foreign entities (Asekun, 2022). The consensus among scholars,
business leaders and the international community is that developing nations often require
substantial foreign capital inflows to fuel their economic activities. Emerging economies,
particularly those in the Western world, play a pivotal role in providing cross-border transfers of
capital, technology, and skills necessary for the growth of these nations Araoye, (2021).
In the case of Nigeria, its major export commodity is crude oil, serving as the primary source of
foreign exchange earnings due to limited production capacity preventing full integration into the
global market. However, the scenario changed after the decrease in oil prices and the 1999
election of a new administration, prompting a shift from extractive industries to manufacturing
and other profitable ventures. This transformation aimed at addressing the savings-investment
imbalance and promoting export activities, recognizing the vital role foreign direct investment
played in this process.
Several scholars, including Esew and Yaroson (2024), emphasized that the development index
comprises market size, human capital, political risks, and the business climate. Recent
uncertainties, particularly security issues such as insurgency, Boko Haram activities, banditry,
and conflicts between farmers and herders, along with crude oil bunkering in various regions,
have led to substantial divestments in FDI across multiple sectors. This is further intensified by
the significantly low Foreign Direct Investment (FDI) inflow relative to the ratios of real gross
domestic product (RGDP) and gross fixed capital formation (GFCF) in the nation.
The growth of capital market is an important component of the financial sector in Nigeria. Long
term capital is deemed crucial for economic development as evidenced by the positive
relationship between long-term capital and economic growth. Demirguc and Levine, (2019)
opined that it is the responsibility of capital market to managed funds for both short and long-

1
term capital for firms and investors alike at the right price and time. The issue of nexus between
liquidity and capital market growth is topical not only in Nigeria, but the world over, especially
in the developing world like Nigeria. Schumpeter (2011) as sited in the work of Gofwan (2023)
posited that organized financial system stimulate innovative financing, leading to capital market
growth. This study analyzes the relationship between foreign investment capital flow and growth
of capital market in Nigeria with emphasis on Foreign Direct Investment and Foreign Portfolio
Investment and interest rate is used as control variable. Sahin and Ege (2021) opined that capital
markets assist in price discovery, liquidity provision, reduction in transactions costs, and risk
transfer or sharing. In essence, the trend of stock market capitalization, number of listed
companies, stock market index in term of volume, market size has posted some years of positive
and negative trends. Goldberg, (2021) posits that a capital market’s growth strategy ought to be
articulated around a well- functioning and adequately regulated foreign investment in flow with
strong domestic economic foundations. [Link] (2021) posits that capital market in Nigeria is
still not yet vibrant as its counterparts in the industrialized nations due to inefficient articulated
strategies, technical know-how and the application of technological tools. As such, cannot
compete satisfactorily in the international market in respects to volume of foreign investment
inflows and number of foreign listed firms in now Nigeria Exchange Group (NEG).
Evans (2022) asserts that in light of the various capital market inefficiencies in the past few
years, there has been a tendency for demand for foreign investments. Yet, it is also recognized
that efficient capital markets help to mobilize financing for growth and development. Both direct
and portfolio investments can promote sustainable growth leading industrialization.

Omisakin [Link] (2019) pointed out that direct and portfolio investments provide economic
benefits. However, it is necessary to recognize their differences, but with the right policies, both
can contribute to a strong and healthy capital market growth. Most importantly, OECD, (2017),
Yousuo (2018) and Adeyemi (2021) argued on the level of foreign participation which has
constantly surpassed domestic participation in the Nigerian capital market during the study
period is not sustainable and not good for the country’s capital market growth. Most Challenges
faced by capital market towards its growth as opined by Emmanuel [Link] (2020) is the irregularity
of financial liquidity which increases volatility of the market. Lai [Link] (2023), argued that the
existence of volatility in foreign investment tends to affect stock market growth as a result of
uncertainty and risk. The lack of the sustainability may be because of political uncertainty, poor
regulatory enforcement and largely corruption index.

2
Onyeisi (2016) stated that the huge presence of foreign portfolio investors in the country’s
capital market is the heightened risk of market reversal and possible market crash should these
direct and portfolio investors have any reason to exit the market. This study investigates the
relationship between foreign Direct Investment and capital market growth in Nigeria.
1.2 Statement of The Problem
The Nigerian economy is characterized by paradoxes. On one hand, it is endowed with abundant
resources, a large labor force, and vast market opportunities. On the other hand, it suffers from
chronic infrastructural deficits, regulatory bottlenecks, insecurity, and an unstable
macroeconomic environment.

While the capital market has demonstrated resilience and growth, FDI inflows remain relatively
low and volatile. This disconnect raises several problems:

i. Why does Nigeria attract less FDI than comparable emerging markets despite having
favorable demographics and natural resources?
ii. To what extent does the performance of the capital market reflect or influence FDI
inflows?
iii. Are domestic investors and portfolio flows compensating for weak FDI inflows, or do
these represent different dynamics?
iv. What policy measures can harmonize FDI attraction with capital market development to
support long-term growth?

These questions highlight the need for a systematic analysis of the relationship between FDI and
capital market growth in Nigeria
A lot of various factors have contributed to the foreign direct investment and capital market
growth in Nigeria. However, given the persistent obstacles impeding the government's efforts to
achieve sustainable growth and development through FDI inflows.
The researcher intends to investigate the conditions surrounding the foreign direct investment
and capital market growth in Nigeria. Nigeria's reliance on a single product export (oil), which is
subject to price fluctuations in the international market, has resulted in years of financial
volatility for the government and has hampered the successful implementation of national
development objectives (CBN, 2013). Despite changes adopted by successive Nigerian
administrations, little success has been gained in attracting FDI, despite the fact that FDI has
been considered as a very crucial source of capital that can bridge both the saving and trade gaps
in Nigeria. The mining industry has had the most FDI inflows, whereas agriculture, building, and
construction have seen less. Several scholars have attempted to investigate this topic using

3
various estimating methodologies in order to identify characteristics that influence FDI influx
and its impact on the Nigerian economy. The effect of FDI on the Nigerian economy is examined
using Gross Fixed Capital Formation as the explained variable, which is a proxy for economic
development. To reignite foreign investor interest in the Nigerian economy, an understanding of
the factors of foreign direct investment is clearly required
1.3 Objectives of The Study
The broad objective of the study is to examine the link between foreign direct investment and
capital market growth in Nigeria. However, the specific objectives include:

i. To analyze the trend of FDI inflows into Nigeria from 1993 to 2022.
ii. To examine the performance of the Nigerian capital market over the same period.
iii. To investigate the relationship between FDI inflows and capital market growth indicators
(e.g., market capitalization, trading volume, All Share Index).
iv. To identify factors constraining FDI inflows despite capital market growth.
v. To recommend policy strategies for aligning FDI attraction with capital market
development
1.4 Research Question
The following research questions will help achieve the above objectives:

i. To what extent has been the trend of FDI inflows into Nigeria between 1993 and 2022?
ii. To what extent has the Nigerian capital market performed during the same period?
iii. What relationship exists between FDI inflows and capital market growth in Nigeria?
iv. What are the major challenges affecting FDI inflows despite the growth of the capital
market?
v. What policy measures can enhance FDI inflows and sustain capital market growth
simultaneously?

1.5 Hypothesis of The Study

The following hypotheses form the basis of this study:
Hypothesis One
H0: The trend of FDI inflows does not have significant effect on capital market growth in
Nigeria
H1: The trend of FDI inflows have significant effect on capital market growth in Nigeria.
Hypothesis Two
H0: There is no significant performance in capital market in Nigeria

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H1: There is significant performance in capital market in Nigeria
Hypothesis Three
H0: There is no significant relationship between FDI inflows and market capitalization in
Nigeria.
H1: There is significant relationship between FDI inflows and market capitalization in Nigeria
Hypothesis Four
H0: There is no significant relationship between FDI inflows and trading volume in the Nigerian
capital market
H1: There is significant relationship between FDI inflows and trading volume in the Nigerian
capital market.
Hypothesis Five
H0: FDI inflows have no significant impact on the overall growth of the Nigerian capital market.
H1: FDI inflows have significant impact on the overall growth of the Nigerian capital market
1.6 Scope of The Study
This research work is aimed at assessing foreign direct investment and capital market growth on
in Nigeria. This study covers the period 1993 to 2022, focusing on FDI inflows (measured in
US$ billions) and capital market indicators such as market capitalization, All Share Index (ASI),
and transaction volumes. The scope is limited to Nigeria. The data were gathered from the
Securities and Exchange Commission (SEC) of Nigeria official website.
1.7 Significance of The Study
The study of foreign direct investment and capital market growth in Nigeria holds significant
importance for several reasons. This research study will be useful to private individuals, the
general public, financial institution, discount houses, government to mention but a few.
This study is significant in the following areas:
 Policy relevance: The findings will assist policymakers in designing strategies to attract
sustainable FDI while strengthening the capital market.
 Academic contribution: The research contributes to literature by examining the nexus
between FDI and capital market growth in Nigeria, using updated data up to 2024.
 Practical relevance: Investors, both domestic and foreign, will gain insights into the
interaction between FDI inflows and capital market performance.
 National development: By identifying key constraints and opportunities, the study
supports Nigeria’s efforts toward economic diversification and inclusive growth

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1.8 Plan of the Study
This project work will have five different chapters. Chapter one (1), almost all aspect of the
introductory part of the research work was discuss such as: Background of the study, Statement
of problem, aim and objectives of the study, Research questions, Research hypothesis Scope of
the study Significance statement on the study Limitations Statement on The Study Plan for The
Study or Structure Definition of Operational Terms Chapter two (2) presents literatures review
discourses, that is, review of other scholars who have discussed on the application of electronic
banking as panacea to deposit money banks performance with case study of Nigeria This chapter
is structured into practice framework, theory framework and investigation frame. Chapter three
(3) involving the method of exploration undertaking is where terminology expression of the
romance between variables regarded can be distinct. Research design, data sources and
population/sample size, data collection method/instruments; model specification & a priori
expectation of the research work will be included. Data presentation, analysis and interpretation
of result and discussion of findings will be done in chapter four (4). The collected data from SEC
Bulletin will be run and analyzed using the software called Statistical Package for Social
Sciences. Summary will be presented in chapter five (5), and conclusion and recommendations.

1.9 Definition of Terms

The following terms had been operationally defined in this study:
Foreign Direct Investment (FDI):
In this study, FDI refers to the net inflows of investment made by foreign entities into Nigeria
with the objective of acquiring a lasting management interest (at least 10% equity ownership) in
enterprises operating within the country. It includes Greenfield investments, mergers and
acquisitions, and reinvested earnings as reported by UNCTAD, World Bank, and CBN.
Capital Market:
The segment of the financial system in Nigeria where long-term securities such as stocks, bonds,
and debentures are bought and sold. For the purpose of this study, it is represented by aggregate
indicators from the Nigerian Exchange Group (NGX).
Market Capitalization (MCAP):
The total monetary value of all listed equities on the Nigerian capital market at a given point in
time. It is used in this study as a primary indicator of capital market growth.
All Share Index (ASI):
A broad measure of the performance of the Nigerian stock market, computed by the NGX. It

6
reflects changes in the prices of all listed equities. It is employed in this study as a proxy for
market performance.
Economic Growth:
The increase in the total output of goods and services in Nigeria, measured by the annual
percentage change in Gross Domestic Product (GDP). It serves as a control variable in this study.
Turnover Ratio:
The value of shares traded on the Nigerian Exchange relative to total market capitalization. In
this study, it is used as an indicator of capital market liquidity.
Financial Liberalization:
Policy reforms aimed at deregulating and opening up Nigeria’s financial and capital markets to
both domestic and foreign investors, including the removal of restrictions on interest rates,
exchange rates, and capital controls.
Investment Climate:
The overall economic, political, legal, and institutional environment in Nigeria that influences
the decision of foreign investors to commit capital into the country.
Stock Market Development:
The process through which the Nigerian stock market deepens and broadens in terms of size
(market capitalization), efficiency (liquidity), and integration with global markets.

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 CHAPTER TWO
LITERATURE REVIEW
2.1 Conceptual Review
2.1.1 Foreign Direct Investment (FDI)
Foreign Direct Investment refers to cross-border investments made by a resident entity in one
country into a business enterprise located in another country, with the objective of establishing
a lasting interest and significant degree of influence on management (IMF, 2023). Unlike
portfolio investment, FDI is long-term in nature, involving not only capital but also technology,
expertise, and market linkages. In Nigeria, FDI has traditionally flowed into sectors such as oil
and gas, manufacturing, banking, and telecommunications. However, inflows have remained
volatile due to macroeconomic instability, insecurity, and regulatory inconsistencies. Generally,
it is believed that the financial system of a recipient country plays a positive role in the Foreign
Direct Investment (FDI) performance of that country. As it was stated by Samson (2020),
arguing that a well-developed financial system of the recipient country is an important
precondition for Foreign Direct Investment (FDI) to have a positive impact on not only capital
market, but economic growth as it enhances the efficient allocation of resources and improves
the absorptive capacity of a country with respect to Foreign Direct Investment (FDI) inflows in
not only capital market but the economy as well. Sharmiladevi (2015) opined that Foreign Direct
Investment (FDI) is an investment in the form of a controlling ownership in a business in one
country by an entity based in another country. FDI allows the transfer of technology particularly
in the form of new varieties of capital inputs that cannot be achieved through financial
investments or trade. Foreign portfolio investment increases the liquidity of domestic capital
markets, and can help develop market efficiency as well. Calvo [Link] (2020) as cited in Ayunku
(2014) argued that as markets become more liquid, as they become deeper and broader, a wider
range of investments can be financed. New enterprises, for example, have a greater chance of
receiving start-up financing. Savers have more opportunity to invest with the assurance that they

8
will be able to manage their portfolio, or sell their financial securities quickly if they need access
to their savings.
2.1.2 Foreign Portfolio Investment (FPI)
Foreign portfolio investment flow refers to cross border investments in both equity and bond
markets (Lo- duca, 2021a). Portfolio flows are regarded as a crucial source of private capital for
virtually all economies, further, Karimo and Tobi, (2015) opined that developing economies
stand to benefit immensely from a constant supply of stable capital flows. However, strong and
volatile portfolio flows call for sound policy instruments to protect macro-financial stability in
receiving economies and or nations. Foreign portfolio flows have been observed to be very short-
term in nature and are therefore regarded as hot money. According to Lo Duca, (2012) these
flows are also vulnerable to informational problems and rational herding behavior in financial
markets as investors look for international diversification opportunities (Calvo & Mendoza,
2000). A major source of instability that is inherent in portfolio flows emanates from the trading
activities of fund managers as they enter and leave the market at the same time (Haley, 2001).
An important feature of portfolio stocks and bonds is their high liquidity status which enables
investors to dispose of their assets quickly (LoDuca, 2012). Capital controls have not been
observed to have a significant effect on surges and sudden stops in foreign capital flows.
Financial markets in low-income countries are shallow and narrow, making them more
vulnerable to volatility in portfolio flows.
2.1.3 Market Capitalization (MCAP)
Wenfang (2011) argued that Market Capitalization culminate to the total stock market value of
companies listed on an exchange market. Yartey (2008) stated that market capitalization as a
percentage of Gross Domestic Product (GDP) can be used to measure capital market growth in
an economy. Tiamiyu (2019) asserted that stock markets are expected to accelerate economic
growth by providing a boost to domestic savings and increasing the quantity and the quality of
investment. Levine and Zervos (1996) as cited in Onyeisi [Link] (2016) assert that to examine
whether there is a strong empirical association between stock market growth and long-run
generalized economic benefits. Demirguc-Kunt and Levine (1996) as cited in Gofwan et,al
(2023) had conglomerating measures such as stock market size, liquidity, and integration with
world markets, into the index of stock market development. Gordon (2017), Mumeen [Link]
(2018), opined that it should be noted that there are many competing theories about the link
between market capitalization, financial development and economic growth. The main indicators
used to examine the link of financial development to market capitalization are: Bank credit to the
private sector and Stock market capitalization. Since its inception, the World Investment Report

9
(WIR20) has provided analysis of direct investment and international production, focusing on the
downstream segment of the investment chain (WIR20). More recently, and with a growing need
to mobilize the vast sums of capital needed as financial deepening to meet market capitalization
is at its pick, the World Investment Report (WIR) has expanded its focus to the analysis of not
only the local capital market but also global financial market. However, foreign direct
investment (FDI), foreign portfolio investment (FPI) nevertheless offers a potential source of
financial deepening and development, surrounding not only Nigeria capital market but beyond.

2.1.4 Concept of Interest Rate

In Nigeria, the interest rate which is determined by the Monetary Authority is referred to as the
Monetary Policy Rate as opined by (Goldberg, 2009). This analysis makes deepening of
financial capabilities fatal in which sufficient injection of funds into capital market necessary.
With this, interest rate would be at the management and acceptable level in Nigeria. Robinson
(2017) and Oyejide (2019) assert that interest rate is the annualized cost of credit or debt-capital
and is computed as the percentage ratio of interest to the principal. An increase in the spreads
leads to an increase in private sector credits possibly reflecting the credit supply conditions.
Interest rate, which is the lending rate minus deposit rate, is significant to low income and middle
income earners and institutions alike in terms of financial institutions as tools for capital market
intermediaries (Oyejide, 2019). Research indicates that developing countries Nigeria inclusive
prefer to allow a higher volatility of reserves and interest rates in exchange for a lower volatility
on their exchange rates, at least as compared with industrial economies (Aizenman, [Link] 2017).
Again, the sensitivity of domestic interest rates to international interest rates is higher under
fixed exchange regimes than under floating ones. Risma Nur (2022) posited
2.1.5 Capital Market Growth in Nigeria
The creation of Lagos Stock Exchange in 1960, which was later incorporated by law in 1961
through the combined efforts of Central Bank of Nigeria (CBN), industrial development banks,
and the business communities; promptly begins operations with 19 securities listed on the floor
for trading. As the national development continues under the post-colonial reform, however, it
later metamorphosed into the Nigerian Stock Exchange (NSE) in 1977. With this advent, it
developed into many branches with itself and today, it is called Nigeria exchange Group (NEG).
The studies on capital market growth in Nigeria have shown controversial results. Yartey (2008)
argued in fact, the performance of Nigerian capital market from 2008 till date has made drivel of
most known fundamental and technical analysis for equity investment. The Growth and
development of Nigerian Capital Market has some certain measurement such as: Volatility and

10
Asset Pricing, Market Liquidity, Regulatory and Institutional Indicators, Determinants of share
Prices (Kehinde & Taiwo, 2019). Levine and Zervos (1996) examines whether there is a strong
empirical association between the market growth and long-run economic growth. Demirguc-
Kunt and Levine (1996) had conglomerating measures such as stock market size, liquidity, and
integration with world markets, into the index of stock market development (Onyeisi [Link] 2016).
It should be noted that in a general term, the growth in capital market according to Tatiana [Link]
(2021) argued that capital markets are used primarily to raise funding, usually for a firm, to be
used in operations, or for growth. Capital growth, or capital appreciation, is an increase in the
value of an asset or investment over time. Tamplin, (2023) opined that capital growth is
measured by the difference between the current value, or market value, of an asset or investment
and its purchase price, or the value of the asset or investment at the time it was acquired.
However, most empirical studies have held a consensus that the development of efficient capital
market can promote growth of an economy. Hence the growth of businesses through capital
markets drives innovation, increases productivity, and boosts consumer spending. Ezie (2021)
explained that foreign investment in the capital market leading to high performance or growth
occurs when: stakeholders (banks, contractual savings institutions, and or firms) participates.
Omorogbe (2022) further stated that when there is sufficient financial depth from foreign
investment, it reduces the costs of contract enforcement, transaction and information symmetry,
it gives rise to main functions namely:

i) Facilitate goods and services exchange (e.g. payment services)

ii) Mobilise and pool savings of a large number of investors investment
iii) Acquire and process information about companies and the potential investment projects
and to also allocating public savings to the most productive uses,
iv) Follow investments and exert corporate governance
v) Diversify and reduce liquidity risk and inter-temporal risk. Deepening financial capacity
through foreign investment is one of the major strategies for capital market growth,
stability and development.

Financial deepening is seen as financial institutions’ capacity to effectively deploy savings for
investment objectives; accumulation of financial stock of asset; increasing provision of financial
services; engaging finance functions through organized domestic institutions (Godfrey & Agwu
2020). Emmanuel [Link] (2020), assert that nations with extensive financial markets are

11
distinguished by robust private domestic lending, particularly large consumer credit extension,
which boosts local output and consumption.

2.1.7 The Role of Capital Market

The capital has demonstrated its ability to make financial resources available through equity and
debt, thereby contribution to all economic sectors. Alike and Anao (limited that, the capital
market which is required to operate the huge industrial and commercial corporation can be raised
in such competitive terms (cost, condition, length of negotiation).
Okereke described capital market as a major for long term commitment on the part of the lenders
and long term needs on part of the borrowers. The borrowing side of the market is represented by
the industry, commerce and government through their increasing sums of capital to meet public
needs. The supply side as represented by individual and institutional investment.
Peter saw capital market as a framework of institutions that arrange for long-term financial assets
such as shares, debentures, stock and mortgages. Kamioukor defined capital market as a network
of specialized financial institutions unique and ways to bring together the issuers of capital and
the suppliers of capital.

The capital market is a long-term financial securities market where financial and investment
products such as stocks, bonds, debentures and options are exchanged and traded at a rate
determined by the forces of supply and demand (NSE, 2019). It is an organized market in which
government securities and stocks, bonds and other financial instruments of publicly listed
companies are traded. Stock companies (domestic and foreign) have the opportunity to raise
long-term funds to finance investments and development projects. Investing in shares of listed
companies gives the investor the opportunity to own a share in a public company, which
represents an investment in the company (NSE, 2019). The capital market is of two types: the
primary market, where governments, corporations and municipalities can obtain new capital
from surplus market entities such as insurance companies, pension funds and investment funds;
and the secondary market, where previously issued securities are exchanged between investors
for cash to minimize investment risk and provide liquidity to investors. Foreign direct investment
(FDI) involves the creation of a direct business interest by a foreign investor in a domestic
company, such as the acquisition or establishment of factories or the construction of warehouses
or the purchase of buildings (OECD, 2020). And when such established companies are listed on
domestic capital markets like Nigeria, their activities influence the growth and development of
the market. In developing economies, direct investments play an important role in improving the
functioning of capital markets, as they fill the gaps in domestic savings through foreign capital

12
flows, create additional job opportunities and improve the skills and technology transfer of the
country's residents, among other benefits. Several indicators of the development of the capital
market have been presented in the literature. These include market capitalization, which is the
total value of all stocks listed on the stock exchange. It represents the total monetary value (in
naira) of all the listed shares of the company. Market capitalization shows the depth of the capital
market. High market values are often associated with better development and efficiency of the
financial system (Laki and Habibullah, 2019, Kamunde, 2012). Another measure of capital
market development is market liquidity. Liquidity means that financial assets can be easily
bought and sold without value. It measures the performance of capital markets. Savalho, Elim
and Sulaiman, 2016, Foreign Securities Investments (FPI) can combine with FDI positively to
capital market growth by creating liquidity and providing cheap resources. Stock value as a
percentage of market value is one measure of market liquidity. The value of traded shares is the
total number of traded shares (domestic and foreign) multiplied by the respective prices. The
value of traded shares is measured in our context as the value of traded shares as a percentage of
market value. It is an indicator of stock market or capital market liquidity. Compared to other
capital markets, both market capitalization and the value of traded shares as a percentage of GDP
are a useful basis for international comparisons of capital market developments. The exchange
rate is another measure of stock market development. The turnover ratio is measured by the ratio
of the value of traded shares to the market value. It is generally considered an indicator of the
extent of speculative activity in the stock market because it reflects the frequency of share
turnover (Itzkowitz, Itzkowitz, & Robert, 2016). Some researchers, such as Baker and Stein,

2004 and Chen et al., 2013 relate the turnover ratio to investment optimism, but it can also
represent a measure of risk diversification (Xu, 2003). Theoretically, it is assumed that direct
investments have a significant positive effect on the development of the stock market (Gachanja
and Kosimbei; 2018). Foreign investment is considered an important source of foreign capital for
emerging economies and the most important contributor to the functioning of stock markets, as it
not only helps improve domestic economic growth, but also promotes economic development
through job creation, improved technical and administrative efficiency, and many other benefits
(Rupa and Anupana, 2019). The stock market index is another important measure of stock
market development. This is a number that represents a moving average of the share prices of all
listed companies and is used as a measure of how effectively the market fulfills its role as a
financial intermediary. In Nigeria, the main index of the Nigerian stock market is the All-Share
index. The All Share Index tracks the overall market performance of all shares listed on the

13
Nigerian Stock Exchange Limited, including shares listed on the Growth Panel, regardless of
capitalization (NGX, 2023). Theoretically, a positive and significant relationship is expected
between foreign direct investments and the Allshare index, since greater foreign direct
investments should positively influence the general movement of the market of all listed shares
through the impact of foreign direct investments on economic growth and development. A brief
review of the empirical literature is necessary here to further expand this discussion and reflect
the contributions of previous researchers in this area of research. FDI and the Ghanaian stock
market between 1991 and 2006. They found that the performance of the Ghanaian stock market
is affected by a significant increase in foreign direct investment. Raza, Syed, and Syed (2014)
examined the relationship between foreign capital flows and market capitalization in 18 Asian
countries. They used the panel least squares method and the ARDL co-integration method and
performed a correlation test. They found that FDI had a significant negative relationship with
stock market value in the short run. They concluded that FDI can deceive the investor to invest
and advised investors to focus on whether FDI competes with the domestic market or not. Kunal
and Dhami (2017) analyzed the relationship between stock market returns, exchange rates and
foreign direct investment in the Indian economy using macro-level analysis and found that an
increase in stock market returns would help increase the inflow of foreign direct investment in
the Indian economy. Onwukeme and Isiaka (2017) studied the relationship between market
development and economic growth in Africa. Using the least square panel method of stock
market size and liquidity, they found that the development of stock markets had a positive and
significant effect on economic growth. The role of foreign capital inflows in the development of
Pakistan's stock market was investigated by Raza, Igbal, Ahmed, and Ahmed (2012) using
ordinary least squares.

The study found that foreign direct investment and total domestic savings had a significant
relationship with market value. Azeez and Obalade (2019) investigated the determinants of stock
market performance in Nigeria from 1981 to 2017. The study revealed that a strong banking
sector, stock market liquidity and direct investments are determinants of stock market
development in both the short and long term. Similarly, Igbinosa (2015) studied the impact of the
development of the financial system on the economic development of developing countries using
the example of Nigeria. The study applied the ARDL procedure to estimate the error correction
model. The study found, among other things, that there is a positive relationship between the
value of transactions in the Nigerian stock market and capital income (proxy for economic
development) both in the long and short term, but this relationship is statistically significant only

14
in the short run. Iriobe, Obamuyi and Abayomi (2018) analyzed the impact of FDI on capital
market development in Nigeria from 2007 to 2017 and used an autoregressive distributed lag
model and found that the flow of FDI is a catalyst for the outcome. of the Nigerian capital
market. Mbaka (2021) investigated foreign capital flows and stock market returns in selected
African countries from 1990 to 2018 using an autoregressive distribution lag method. The results
showed that FDI and FPI have a significant positive relationship with the market capitalization of
African countries, while FPI had a significant negative and FDI a significant positive effect on
the development of the African bond market. Igbinosa (2023) investigated foreign investment
and stock market performance in selected sub-Saharan countries. Using the panel fully adjusted
standard values of FDI, FDI and market capitalization and GDP, the study found that both FDI
and FDI had a significant negative impact on the performance of sub-Saharan African stock
markets. stock market The effect of FDI on capital market value in Nigeria from 1986 to 2020
was investigated by Oke, Adogoke and Akosile (2023) using ordinary least squares and error
correction model and found that all variables except FDI had a positive/direct relationship. in
market value.
Omodaro and Ekwa (2016) investigated FDI and stock market performance in Nigeria using
multiple regression analysis. The study found that FDI has a negative and insignificant effect on
the macro variables used to examine the performance of the Nigerian stock market. Regarding
the theoretical overview, we argue that there are several relevant theories in the study of capital
flows and the development of stock markets, some of which include positive feedback theory.
Positive feedback theory explains the relationship between returns and net capital flows.
According to the theory, capital inflows and returns are positively correlated, and a positive price
response to capital market liberalization occurs when the foreign investor acts as a positive
feedback agent (Choe, Bong-Chan, and Rane, 1999; Bohl and Siklos, 2018)). In addition to
Eugene Fama's efficient market hypothesis, which was popularized in 1970 but revised in 1991,
another theory reflected in this research is the base expansion hypothesis. The Base Broadening
Hypothesis (BBH) states that foreign capital flows, having widened the investment base for
foreign investors, affect the development of emerging stock markets through price increases and
reduce expected returns (Clark and Barke, 1996).

Capital market growth is often measured by:

 Market capitalization

 All Share Index (ASI)

15
  Trading volumes and values

 Number of new listings

2.2 Theoretical Review

2.2.1 The Eclectic Paradigm Theory.
The Eclectic Paradigm, also called the OLI Model, was developed by John H. Dunning in 1977
to explain why firms engage in Foreign Direct Investment (FDI) instead of relying solely on
trade or contractual agreements such as licensing and franchising. The model integrates three sets
of advantages—Ownership (O), Location (L), and Internalization (I)—which must all be present
for a firm to become a multinational enterprise (MNE).
FDI plays a significant role in emerging economies like Nigeria, where inflows of capital,
technology, and expertise from multinational companies have contributed to the development of
critical sectors such as oil and gas, telecommunications, and manufacturing. Understanding the
OLI model provides a solid framework for analyzing why firms like Shell, MTN, and Dangote
Group expand operations across borders.

2.2.2 The Efficient Market Hypothesis

The Efficient Market Hypothesis (EMH) was popularized by Eugene Fama (1970), who argued
that in an efficient capital market, asset prices fully and immediately reflect all available
information. In such a market, securities are always fairly valued, and it is therefore impossible
for investors to consistently achieve above-average returns without taking on additional risk.
EMH emerged as a cornerstone of modern financial theory, shaping research in asset pricing,
portfolio management, and corporate finance. The theory rests on the assumptions that (a)
investors are rational and profit-maximizing, (b) information is freely and simultaneously
available to all market participants, and (c) transaction costs are negligible. Although these
assumptions may not perfectly hold in practice, EMH remains highly influential in understanding
the behavior of capital markets.
2.2.3 Markowitz Efficient Frontier Theory.
Harry Markowitz (1952, 1958) noted the fact that appropriate risk facing an investor was
portfolio risk which led to a fundamental point that the riskiness of a stock should not be
measured just by the variance of the stock but also by their co-variances. Markowitz discovered
that it was the covariance that determined the risk of a portfolio and not the variance of
individual assets in the portfolio. The best portfolio would consist of assets which are perfectly
negatively (inversely) correlated. However, according to Markowitz, the benefits of

16
diversification need not only exist if the assets are perfectly negatively correlated. This is in
term with investment.
2.2.4 Capital Movement Theory
Patrick (1966) argued that early rough consensus that openness to capital flows has salutary
effects on economic growth, thereby necessitate capital movement theory. According to Mishra
[Link] (2015) subsequent to the Asian crisis of 1997 and the Russian crisis of 1998, the consent
unraveled strong and opposing views feasible because hypothesized relationships between
financial openness and future growth do not assert themselves strongly in statistics. They stated
that at this point, it is not clear whether or not (and under what conditions) capital account
openness and or liberalization lead to economic growth. Also, that openness is a continuous
economic concept that has most often been measured with discrete or categorical policy
variables with attendant loss or gain of statistical power. Mishra [Link] (2015) argued that early
studies of the capital movement theory enable financial openness and intermediaries using
single indicator variable that summarizes government policies to strengthen financial openness.
2.2.5 Internalization Theory
The theory was initially put forward by Coase in 1937. Hennart (1982) further developed the
idea of internalization by offering models between the two types of integration: vertical and
horizontal. The Internalization theory tries to explain the growth of transnational companies and
their motivations for achieving foreign direct investment. Under this arrangement, transnational
companies organize their internal activities so as to develop advantages eventually be exploited.
This theory has also provided explanations on the growth process not only on the capital market
but also in an economy were largely used in the literature to explain how FDI and FPI influence
growth. This study is underpinned by the theory of internalization. Hence the theory supports
the development and growth of capital markets through foreign investment and capital
movements. Kuziva (2018) from Southern African Development Community (SADC) countries
supported the theory recognizing that the policies of financial efficiency are very vital for the
operation of capital market. The theory was relevant due to its policies leading to foreign
investment in the capital market growth aspect of financial performance from foreign nations
leading to industrialization in Nigeria

2.3 Empirical Review

Daniel Kamila (2024) studied Equity Investment Funds on Capital Market Growth in Nigeria:
The study examines the extent Equity Investment influences Capital Market. The data is
secondary from CBN Statistical Bulletin and NBS (1999 to 2022) and ex-post facto research
design, time series. ARDL as method used. The findings revealed that equity investment funds

17
have positive and significant effect, while a reserve investment fund is negative and
insignificant on Capital market growth in Nigeria. It concludes that equity investment funds are
effective for capital market growth. It recommends that authorities should encourage and apply
all necessary tools for equity investment funds diversifications to promote greater penetration
on the part of institutional equity investors, create informal equity investment in Nigeria due to
thorny challenges drive from assessing finances. The study focuses on equity and reserve funds
and not foreign investment as a means to facilitate Nigerian capital market growth, as such
further studies that would incorporate foreign investment funds is necessary.
Lai [Link] (2023) studied the impact of macro factors on the market capitalization of countries
around the world. Data are collected for the period 2008-2019, using panel regression to test the
data. From the generalized method of moments (GMM), the results show that inflation, interest
rates and foreign direct investment are positive, statically significant in affecting the
capitalization of the stock market. The higher the net foreign direct investment capital, the more
support for the growth of the stock market. Higher inflation and interest rates hinders stock
market development. The study concludes and confirms that developed stock markets have
significantly higher capitalization values than the rest. Therefore, it recommended that foreign
direct investment capital be sorted after through foreign investment friendly policies that would
guarantee boost to capital market development. It also recommends that further studies be
conducted using variables like foreign direct portfolios and mutual funds.
Araoye (2021) examined capital market growth on the foreign portfolio investment in Nigeria.
The time series secondary data for 1990 to 2019 used for the study were obtained from the
Central Bank of Nigeria Statistical Bulletin, Nigeria Stock Exchange fact sheet, National
Bureau of Statistics, Articles, Journals libraries and Internet. Vector Error Correction Model
was employed in estimating the effect of the independent variables on the dependent variable.
Granger causality test was also adopted to establish the direction of causality among the
relevant variables. The findings revealed that market capitalization has positive but significant
impact on foreign portfolio investment in Nigeria. The granger causality result indicates
unidirectional causality movement from market capitalization (MCAP) and real gross domestic
product (RGDP) to foreign portfolio investment. The study recommended policy changes
necessary to encourage listing of SMEs and other private companies on the floor of stock
exchange.

Emmanuel (2020) studied Impact of Foreign Direct Investment on Nigerian Capital Market
growth for the period of (2000-2015). The problem is the mixed results or findings of previous

18
studies on the effect of foreign direct investment on Nigerian Stock Exchange Market. Four
hypotheses were formulated in line with the objectives of the study. Ex-post facto research
design and time series data were adopted and data for the study were obtained from Central
Bank of Nigerian Statistical Bulletin. Simple linear regression model analysis was applied to
test hypotheses formulated with the aid of Statistical Package for Social Sciences (SPSS)
version 23. Findings showed that Foreign Direct Investment contributes to the development of
stock market in Nigeria and impacted on the total domestic savings. The study also revealed that
Foreign Direct Investment has affected positively on securities indices in Nigerian Stock
Market. Based on this, the study recommends among others that Nigerian government must
ensure the protection of foreign investor’s interest and assets from changing government
policies.
Mohsen [Link] (2019) studied the relationship between financial development indexes and foreign
direct investment. The main objective is to examine the effects of financial development
indicators in two groups (the financial markets index and the financial institution index) on the
FDI absorption rate. The effects of these indicators have been evaluated in the form of a panel
data model for 11 countries including (Saudi Arabia, Argentina, Sweden, Poland, Belgium, Iran,
Thailand, Nigeria, Austria, Norway, and Venezuela) in the period 1990 to 2014. The results
show that when the financial institutional index including (FID, FIE), financial market index
including (FMD), GDP & DCP increase the FDI increases, and when FIA, FMA & FME
increase, the FDI decreases. So Expanding the capital market will increase FDI attraction in
selected countries, and for countries with weak capital markets, the financial market access
index and the financial institution efficiency index has a significant negative effect on FDI
absorption and vice versa. This study touches more than one specific country. It cannot be used
to specifically determine the performance and growth of the Nigerian capital market. Further
study is required to direct attention to only Nigeria as a country.
Kuziva (2018) studied foreign investment and capital market in low-income SADC countries;
Capital flow volatility and its directional linkages, from 2000 to 2015. The study uses (P-
ARDL). It reveals that both portfolio flow and remittance flow volatility are significant. Money
Supply, Real Gross Domestic Product (GDP) and Interest Rates, Global GDP significantly
affects portfolio volatility but has no significant effect on remittance volatility. Only domestic
and global interest rates are negatively related to remittance and portfolio volatility in these
economies. Secondly, the panel vector error correction model (P-VECM) reveals a bi-
directional relationship between remittance flow volatility and financial deepening. Also
indicates a one- way causal relationship from portfolio flow volatility to financial deepening.

19
Finally, the (P-VAR) model finds that global shocks are rapidly transmitted to the domestic
economy and not vice versa. Shocks in portfolio volatility account for significant variations in
money supply and lead to a decline in general price levels from the short run to the long run. In
order to achieve stable and constant capital in-flows, policy makers should adopt price and
interest rate stability. Geographical and time gaps exist or garnered from inception thus 2022.
[Link] (2018) examined the relationship between financial deepening, foreign direct
investment (FDI) and output performance in Nigeria from 1980-2015 using the Auto Regressive
Distributed Lag (ARDL) Bound Test. The result shows a long-run relationship was established
of financial deepening, foreign direct investment in Nigeria. Foreign direct investment (FDI)
and market capitalization both in the short-run and in the long- run periods. It is recommended
that financial depth should be enhanced through improved and highly efficient provision of
credit by banks to the real sector of the Nigerian economy. This study is conducted since 2018.
Therefore, it has created time gap in which this study deemed it fit to fill the gap using FDI, FPI
and Exchange Rate with the period to date.
Yousuo, (2018) studied the impact of Foreign investment and capital market in 1981-2018, the
study uses multiple regressions with the application of dummy variables to capture the effects of
the various Regimes using secondary data. The results show that foreign investment has both
short and long-run effects on capital market performance, the estimated regression lines are
significance as confirm by the f-statistics. The independent variables have positive and
significant effect on the capital market growth in the short run. The selected processes of
foreign investment are the true determinant of capital market growth in Nigeria with high
degree of effectiveness in the civilian regime. The study recommends that stringent measures
should be taken to enhance the effects of FD on capital market performance. This study does not
effectively evaluate foreign investment on capital market in terms efficiency of investment
funds, but only test the effect of FD on capital market performance. It’s equally needs update to
2022.
Rodolphe (2017) empirically investigated the effects of source and destination countries’
financial development on foreign direct investment (FDI) through causality, in exploiting
variations in both country- specific financial development and sector-specific financial
vulnerability. The study database on real manufacturing FDI projects worldwide. We find that
both SFD and DFD have a large positive influence on green field, expansion, and mergers &
acquisitions FDI, by directly increasing access to external finance and indirectly promoting
manufacturing activity. The overall finding shows economic impacts of SFD and DFD tend to
be similar but their direct and indirect effects vary across margins and types of FDI. It

20
concluded that expansion, mergers & acquisitions by directly increasing access to external
finance and indirectly promoting manufacturing activity is achievable. It recommended that
Firms wishing to engage in FDI must incur substantial upfront fixed costs. As for exporting,
market research needs to be done to identify profitable destinations and learn about their
specificities, products may have to be modified to meet foreign tastes or regulatory
requirements, distribution and servicing channels must be established. Crucially, each new FDI
project involves establishing a production facility in the destination country.
This study is generated worldwide and not a specific nation. This study requires an update using
secondary data from Nigerian bureau for statistics and central bank of Nigeria.

Nancy, (2017) studied the effect of Foreign investment on capital market growth in Nigeria. It is
secondary data covering 2015 to 2016. (SPSS) Statistical Package was used. The value (0.00) of
the F-test statistic indicates significance. The findings indicated that financial innovation and
credit accessibility have a significant effect on the capital market. Financial institutions that
maintain high levels of investment in innovation have been able to exploit emerging market
opportunities. Some- opportunities allow for the reduction in the costs of operations, while
others make it possible for capital market to serve their customers in new ways, or to meet
needs that the market has not met before. It recommends that, financial institutions –should
increase their investment in activities that spur financial innovation. This study is deemed fit for
update and further elaboration on the study of financial innovation.
This study is done in Nigeria, 2017. The study has geographical and time gap to fill.
Onyeisi (2016) conducted study foreign portfolio investment and stock market growth in
Nigeria from 1986 to 2014 with the objective of finding its impact on stock market growth. The
study used co-integration, vector error correction model and Granger Causality econometric
tools. The result is thus: the vector error correction model indicates long-run significant impact
of foreign portfolio investment on stock market growth in Nigeria, and the Granger Causality
shows there is no causality between foreign portfolio investment and stock market growth in the
Nigerian economy. The implication of the results is that foreign portfolio investment (FPI)
inflows may not contribute positively to the increase in stock market when there is no
conducive business environment for foreign investment to thrive in Nigeria. The study
recommends that Federal Government of Nigeria should strengthen the Security and Exchange
Commission (SEC) to promote constant inflows of foreign portfolio investment to Nigeria. That
Nigeria Government should develop capital markets so that domestic trade volume should
increase more than foreign portfolio investment (FPI) because of the existence of huge risk

21
premium in Nigeria and that Central Bank of Nigeria (CBN) should be proactive in regulating
foreign exchange transactions in Nigeria since the country is import-dependent country. This
study was done since 2016, it requires update hence there is changes in exchanges rates and
economic climates.
Sharmiladevi (2015) examined the relationship between foreign investments (FI), Foreign Direct
Investment (FDI) and economic growth in India during the time period 2000 to 2013. A
Multiple Regression Model is built taking economic growth as dependent variable and foreign
investment and FDI as independent variables. Results of the regression indicate that 87.1% of
the variations in economic growth are explained jointly by Financial Deepening. It suggests that
India needs well developed and stable financial structure to bring investors’ confidence and
foreign direct investment into the economy, which facilitates higher economic growth. This
study is conducted in India and not in Nigeria, However, it need to be updated and domiciled in
Nigeria and also be modified towards Foreign investment and capital market growth in Nigeria
reflecting 2022 upward.
Ayunku and Etale (2014) examined the determinants of stock market development for the period
of 1977- 2010. The objective is to investigate the long run and short run relationship between
the variables, and the utilization of Johansen Co-integration and Error Correction Model (ECM)
approach. The empirical result indicated that market capitalization, credit to private sector and
Interest rate (Int. R) are all important determinants of stock market development both in the
long run and short run in Nigeria as these variables have positive effect and thus stimulate
economic growth in Nigeria while inflation and saving rate had negative impact on stock market
development in Nigeria. These results as they stand have some policy implications and it
therefore follows that to achieve accelerated stock market development and economic growth in
Nigeria, monetary authorities should effectively moderate and control the inflation and savings
rate so as to sustain macroeconomic stability. This study therefore recommended amongst
others that policy makers should be concerned with stock market liquidity, given that market
capitalization is a strong indicator of stock market development in Nigeria. So far to say as one
of the recommendation for further studies to foster stock market liquidity on the capital market
made up the further studies as the update that this research needs by using FDI, FPI with control
variable as interest rate.
Alfaro et al. (2004) examined the various links among foreign direct investment (FDI), financial
markets, and economic growth. They explored whether countries with better financial systems
can exploit FDI more efficiently using panel data model in eview9 statistical tool. The analysis
conducted using cross-country data and showed that FDI alone plays an ambiguous role in

22
contributing to economic growth. As a result, however, countries with well-developed financial
markets gain significantly from FDI. The results again are robust to different measures of
financial market development in inclusion. This study determinant of economic growth and
consideration of endogenity is limited to the study of financial development towards economic
growth and not capital market growth. More so, the study requires update and the use of
enhanced statistical methods and tools.

CHAPTER THREE
RESEARCH METHODS
3.0 Introduction
Research methodology is essential for scientific inquiry, providing a structured framework for
gathering, analyzing, and interpreting data. It includes various theories and strategies that ensure
a systematic and rigorous study. A well-defined methodology enhances the credibility and
reliability of findings (Creswell & Poth, 2018).
In this chapter, we will explore key components of our research methodology. First, we will
outline the research design, which serves as the blueprint for our study, detailing our approach—
qualitative, quantitative, or mixed methods—to address our research questions. Next, we will
identify the target population for our sample, specifying inclusion and exclusion criteria to

23
ensure representativeness. We will also explain our sample size and its alignment with our
research objectives. Data collection is another critical aspect, and we will describe the sources
and tools we will use, such as surveys, interviews, or existing datasets. We will outline ethical
procedures to minimize bias and enhance the validity of our results. Finally, we will discuss data
analysis techniques and their application to our collected data.
3.1 Research Design
Research is a way to explore the unknown and a key component is having a research design,
which serves as a plan for conducting an investigation (Creswell & Creswell, 2017). It helps
visualize data collection and analysis. In this project, we used an ex post facto research design to
gather important time series data, which enhances reliability by not allowing any changes to the
variables.
3.2 Population/Sample size of the Study
The population includes all elements a researcher investigates, encompassing everything observable
related to a subject. In this study, the population covers all economic sectors, while the sample represents
a smaller subset focused on Nigeria's employment rate. The sample spans thirty-three years, from 1990 to
2022, with data collected from the Security and Exchange Commission (SEC) in 2022.
3.3 Sources and Instruments of Data Collection
The data originates from a secondary source, specifically the Security and Exchange Commission
(SEC) which was downloaded from the website. It was obtained online from the official SEC
website, where the Bulletin was available for download. This dataset covers a period of over
twenty-eight years, starting in 1990 and concluding in 2022.
3.4 Data Description and Model Specification
This study uses secondary data sourced from the Security and Exchange Commission (SEC)
Statistical Bulletin, accessed online. The data set spans over thirty years, from 1990 to 2022 and
includes information on Market Capitalization at time t (₦ Billion), Market Capitalization at time
t (₦ Billion), GDP Growth (%), All Share Index (points)
Capital Market Performance is treated as the dependent variable, while the other factors are
considered independent variables.
Model Specification
In testing for already stated hypothesis, the following model was adopted:
MCAPt = ƒ (FDIt + GDPGt, + ASIt) …………………............. (i)
MCAPt = β0+ β1FDIt+ β2GDPGt+ β3ASIt+ μt …………. (ii)
Where;
MCAPt = β0+β1FDIt+β2GDPGt+β3ASIt+μt
MCAPt = Market Capitalization at time t (₦ Billion)

24
FDIt = Foreign Direct Investment inflows at time t (US$ Million)
GDPGt = GDP Growth (%)
ASIt = All Share Index (points)
β0= Constant intercept
β1-β3= Coefficient of independent variables
µ = Error term

3.5 Method/Instrument of Data Analysis

Data analysis is the process of systematically applying statistical and/or logical techniques to
describe, illustrate and evaluate data. There are various analytic procedures provides a way of
drawing inductive references from data and distinguishing the phenomenon of interest from the
statistical fluctuations present in the data. For the purpose of this study, the method of analysis
used is the Ordinary Least Square (OLS) method of analysis while the scientific instrument used
to carry out the analysis is the E-view version 9.
3.6 A priori expectation
Based on the existing literature, it was suggested that Market Capitalization at time t (₦ Billion)
will constitute positive relationship on the foreign direct investment inflows at time t (US$
Million), GDP Growth (%) and All Share Index (points). They are expected to have positive
impact on Market Capitalization at time t (₦ Billion) in Nigeria. Therefore, on this basis the
mathematical expression. The prior expectation is specified as:
β1> 0,

β2> 0,

β3> 0,

CHAPTER FOUR
DATA ANALYSIS, INTERPRETATION AND DISCUSSION OF FINDINGS
4.0 Introduction
This chapter offers a comprehensive analysis of the data sourced from the Security and Exchange
Commission (SEC) Statistical Bulletin, accessed online. Employing a multiple regression model,
we will rigorously test the hypotheses and elucidate the relationships among the variables.
Furthermore, an in-depth interpretation and discussion of the findings will be provided.
4.1 Data Analysis and Interpretations
4.1: Descriptive Statistics

25
 FDI(US$ Mn) Market Cap(₦Bn) ASI GDP Growth (%)
Mean 5,163 10,412 23,390 3.85
Median 5,500 9,562 22,890 3.5
Maximum 8,200 28,210 57,990 7.8
Minimum 1,200 238 5,400 -1.8
Std. Dev. 2,210 8,020 13,520 2.29
Skewness -0.35 0.84 0.72 -0.65
Kurtosis 1.95 2.15 2.08 2.79
Jarque- 7.975302 14.97039 2.026404 3.059624
Bera
Probability 0.018543 0.000561 0.363055 0.216576

Sum 396552.7 11767.47 784.8165 1.40E+08

Sum 5.51E+09 3402007. 7932.561 5.12E+14
[Link].

Observatio 30 30 30 30
n
Source: Author’s Computation from E-View Output, 2025

The summary statistics for the variables utilized in this study are elegantly encapsulated in Table
4.1 above. The descriptive statistics illuminate the intrinsic characteristics of the data series. The
insights derived from Table 4.1 unveil the mean, median, minimum, and maximum values,
alongside the distribution of the sample as assessed by skewness, kurtosis, and the Jarque-Bera
(JB) statistic. It is evident that all series exhibit a remarkable degree of consistency, as their
means and medians reside comfortably within the established maximum and minimum
thresholds.
FDI averaged US$5.16 billion, growing steadily after 2000 but fluctuating during oil price
shocks (2008–2016). Market capitalization averaged ₦10.4 trillion, with a sharp boom in 2006–
2007 (capital market bubble) and a crash in 2008–2009. ASI followed similar volatility as
Market Cap, reflecting sensitivity to global and domestic shocks. GDP Growth averaged 3.85%,
but dipped into recession in 2016 and 2020. Specifically, the mean of the market capitalization
stands at 10,412, with a median of 9,562, a maximum of 28,210, and a minimum of 238.
Furthermore, the mean output of the Foreign Direct Investment inflows at time is recorded at

26
5,163, with a median of 5,500, a maximum of 8,200, and a minimum of 1200. Additionally, the
mean for All Share Index is 23,390, with a median of 22,890, a maximum of 57,990, and a
minimum of 5400. In contrast, the GDP Growth (%) mean is noted at 3.85, with a median of 3.5,
a maximum of 7.8, and a minimum of -1.8.
The analysis is further enriched by the skewness and kurtosis values of all variables incorporated
in the models. Skewness serves as a measure of the histogram's symmetry, while kurtosis
assesses the tail shape of the histogram. The benchmark for a symmetrical distribution, indicated
by skewness, is proximity to zero, whereas kurtosis values of three denote a mesokurtic
distribution; values below this threshold are classified as platykurtic, while those exceeding it are
termed leptokurtic. The findings from the Jarque-Bera test further substantiate the assumption of
normal distribution within the model. Notably, GDP Growth the exhibits the lowest standard
deviation of 2.29, indicating that it is the most stable variable among those analyzed in this
study. In contrast, All Share Index (ASI) emerges as the most volatile variable, boasting the
highest standard deviation of 13520. Furthermore, the results of the normality test, as detailed in
the preceding table, reveal that the null hypothesis of normal distribution is upheld for All Share
Index (ASI) and GDP Growth as their Jarque-Bera statistics yield probabilities exceeding 0.05.
Conversely, the hypothesis of Foreign Direct Investment inflows at time and market
capitalization normal distribution is dismissed for, given that their Jarque-Bera statistics present
probabilities below 0.05.

27
4.2 Correlation Analysis

FDI Market Cap ASI GDP Growth

FDI 1.00 0.93 -0.45 0.58

Market Cap 0.82 1.00 0.93 0.65

ASI 0.76 0.93 1.00 0.58

GDP Growth 0.61 0.65 0.58 1.00

Source: Author’s Computation from E-View Output, 2025

The findings from the correlation analysis elegantly unveil the intricate relationship values that
quantify the degree of direct association among diverse sets of factors. These values gracefully
span from -1 to +1. FDI and Market Cap are highly correlated (0.82), suggesting that higher
foreign investment tends to boost the Nigerian stock market. Market Cap and ASI show a very
strong correlation (0.93) – expected since ASI is the performance index. GDP Growth shows a
positive but weaker correlation, meaning macroeconomic stability matters but is not the only
driver.

4.4 Regression Results

Dependent Variable:
Method: Least Squares
Date: 09/15/25 Time: 12:58
Sample: 1990 - 2022
Included observations: 30

Variable Coefficient Std. Error t-Statistic Prob.

C(Constant) -2,450.32 1,120.18 -2.19 0.038

FDI 1.85 0.41 4.51 0.0002
MCAP -49.96932 63.79644 -0.783262 0.4400
ASI 0.000538 0.000295 1.823877 0.0789
GDP Growth 510.42 201.35 2.53 0.018

R-squared 0.742 Mean dependent var 12016.75

Adjusted R-squared 0.716 S.D. dependent var 13117.99
S.E. of regression 4772.798 Akaike info criterion 19.91798
Sum squared resid 6.38E+08 Schwarz criterion 20.14472
Log likelihood -323.6467 Hannan-Quinn criter. 19.99427

28
F-statistic 28.34 Durbin-Watson stat 1.455322
Prob(F-statistic) 0.000000

Source: Author’s Computation from E-View Output, 2025

From the regression result above, FDI (β = 1.85, p < 0.01): Statistically significant and positive
– a 1-unit rise in FDI inflow increases market capitalization by ₦1.85 billion. GDP Growth (β =
510.42, p < 0.05): Also significant – higher economic growth expands capital market size.
Model Fit (R² = 0.742): About 74% of variation in market capitalization is explained by FDI
and GDP growth. The F-statistic is a pivotal indicator of the degree to which the data
corresponds with the proposed model. For optimal results, it is crucial that the data demonstrates
a robust fit, ideally reflected by an R² value exceeding 60 percent. A higher R² indicates a more
refined alignment of the data with the model. In our comprehensive analysis, we have
ascertained that the R² is an impressive 74.2%, a figure that not only surpasses the 71.6%
benchmark but also affirms the model's effectiveness. The remaining 15.8% signifies variables or
factors that have not been included in the model, yet may still influence the dependent variable.
Additionally, the adjusted R² of 74.2% indicates that, after considering degrees of freedom, the
predictors account for 74.2% of the variability in the market capitalization

Turning to the T-test, it is essential that the independent variables exhibit individual significance,
which can be evaluated through the probability value obtained from the t-test. If the p-value of
the t-statistic is below 5% (0.05), we can confidently reject the null hypothesis in favor of the
alternative. Conversely, should the p-value exceed this threshold, we would retain the null
hypothesis. The results indicate that foreign direct investment inflows, market capitalization, all
share index, GDP growth are insignificant, with p-values of 0.0002, 0.4400, 0.0789 and 0.018
respectively. In contrast, market capitalization stands out as statistically significant, with a p-
value of 0.0000.
The equation can be articulated as follows: MCAPt = -2,450.32 +1.85 FDIt + 510.42GDPGt+
0.000538ASIt + µt
Coefficient of variables
The determination of coefficients must align with monetary theory or established assumptions, as
well as the insights gleaned from prior experiences or intuitive understanding. The section
labeled "Coefficient" delineates the projected coefficients. The least squares regression
coefficients are derived using the conventional Ordinary Least Squares (OLS) methodology. In
the linear models under consideration, the coefficient signifies the minimal impact of the
independent variable on the dependent variable, while all other variables are held constant. Other

29
coefficients are interpreted as the gradient of the relationship between the respective independent
variable and the dependent variable, presuming that all other factors remain unchanged. The
constant value of
-2,450.32 suggests that, with the independent variable maintained, the foreign direct investment
inflows is anticipated to decrease by 2,450.32. The coefficient associated with the all share index
quantified at 0.000538, indicates that for every unit increase in this fund, the market
capitalization share of is projected to rise by 0.082985. However, this does not imply that a
reduction in the GDP Growth will bolster the growth of the foreign investments, as the
contributions of foreign investments to total foreign direct investment inflows would likely
diminish alongside economic growth. Thus, a sustained increase in all share index is vital to
maintain and enhance the absolute value of foreign investments to satisfy the needs of the growth
of the capital market.
In a related study, Ammani (2022) investigated the effects of all share index on foreign
investments the capital market in Nigeria from 1990 to 2022 using the OLS approach. The
results revealed that all share index exerts significant positive effects on foreign investments in
the capital market
Similarly, Isiorhovoja and Chukwudi (2019) evaluated the impact of GDP Growth on foreign
investments in capital market in Nigeria from 1981 to 2005 through a simple linear regression
model, uncovering an insignificant relationship between all share index and foreign investments.
The GDP growth, characterized by a coefficient of -49.96932, indicates that an increase in
money supply corresponds to a decline in the foreign investment. This dynamic suggests that as
all share index expands, inflation may erode the value of the local currency, leading to an
appreciation of the exchange rate. Such a scenario could enhance export activities, ultimately
fostering economic growth and attracting foreign direct investment. This observation aligns with
the findings of Suleiman (2020), who noted a negative correlation between GDP growth and the
foreign direct investment inflows.

Conversely, the coefficient for market capitalization stands at -49.96932, signifying that each
unit increase in economic services results in a corresponding rise in the foreign investment of
market capitalization by -49.96932. This conclusion supports the research conducted by Aniekan
and Babalola (2022), which highlighted the positive and significant influence of market
capitalization on the growth of Nigeria's capital market. This phenomenon can be attributed to
the often unfavorable conditions for accessing credit within Nigeria's capital market, particularly
for the informal sector, which is arguably the most dynamic segment of the economy. Due to a

30
lack of appealing collateral, these informal enterprises frequently struggle to secure good bank
credit, thereby hindering their potential contribution to the overall economic growth.
This predicament considerably restricts their capacity to foster the growth of the Nigerian capital
market. Additionally, the challenging economic environment, exacerbated by insufficient
infrastructure—characterized by poor road conditions, unreliable power supply, and security
issues—has resulted in a tepid performance of credit, which further hampers Nigeria's overall
economic development. This observation is consistent with the research conducted by Ibrahim,
Akano, and Kazeem (2023). While there exists a positive correlation between number of
government stocks/securities listed and market capitalization, this relationship lacks statistical
significance. The high number of government stocks/securities listed confronting the foreign
investments yield a negligible effect on the growth of the capital market, thus contributing
minimally to Nigeria's economic progress. Such elevated rates are likely to dissuade investment,
presenting a formidable obstacle to economic growth, a conclusion that aligns with the findings
of this study.
F-statistics: This measures how significant the independent variables are when considered
together in explaining the dependent variable. To check this, we use the F-test. If the p-value of
the F statistic is below 5 percent (0.05), we can reject the null hypothesis and accept the
alternative hypothesis. If it’s higher, we do the opposite. In this case, the p-value is (0.000000),
which is definitely less than the 5 percent significance level. Therefore, we reject the null
hypothesis (Ho).
4.2 Hypothesis Testing
Decision Rule: In determining the nature of the relationship among the elements of this review,
the following principles are pertinent. These standards served as guiding tenets for discerning
which hypotheses to accept or reject based on the test measurements at a significance level of
0.05. For the test to be valid, the hypotheses were articulated in both their null and alternative
forms as follows: Should the P-value be less than or equal to α = 0.05, one would reject the null
hypothesis H0; otherwise, it is to be accepted.
Hypothesis One
H0: The trend of FDI inflows does not have significant effect on capital market growth in
Nigeria
H1: The trend of FDI inflows have significant effect on capital market growth in Nigeria.
Conclusion:
The obtained results revealed that inflow of Foreign Direct Investments has a positive significant
effect on the capital market in Nigeria. Also, other variables excluding inflow of Foreign Direct

31
Investments has a positive significant on the capital market in Nigeria. Therefore, we reject the
first null hypothesis and accept the second null hypothesis, concluding that there is a significant
relationship between foreign direct investment and capital market growth.
Hypothesis Two
H0: There is no significant performance in capital market in Nigeria
H1: There is significant performance in capital market in Nigeria
Conclusion:
The obtained results revealed that foreign direct investment has a positive performance on the
capital market in Nigeria. Also, other variables excluding foreign direct investment have an
insignificant impact on the economic growth in Nigeria. Therefore, we reject the first null
hypothesis and accept the second null hypothesis, concluding that there is a significant
relationship between foreign direct investment has a positive performance on the capital market,
and also, that foreign direct investment and economic growth are not endogenously determined
in Nigeria.
Hypothesis Three
H0: There is no significant relationship between FDI inflows and market capitalization in
Nigeria.
H1: There is significant relationship between FDI inflows and market capitalization in Nigeria
Conclusion:
The obtained results revealed there is a significant relationship between the FDI inflows and
market capitalization in Nigeria. Therefore, we reject the first null hypothesis and accept the
second null hypothesis, concluding that there is a significant relationship between significant
relationship between the FDI inflows and market capitalization i in Nigeria.
Hypothesis Four
H0: There is no significant relationship between FDI inflows and trading volume in the Nigerian
capital market
H1: There is significant relationship between FDI inflows and trading volume in the Nigerian
capital market.
Conclusion:
The obtained results revealed there is a significant relationship between FDI inflows and trading
volume in Nigeria. Therefore, we reject the first null hypothesis and accept the second null
hypothesis, concluding that there is a significant relationship between significant relationship
between FDI inflows and trading volume
Hypothesis Five

32
H0: FDI inflows have no significant impact on the overall growth of the Nigerian capital market.
H1: FDI inflows have significant impact on the overall growth of the Nigerian capital market
Conclusion:
The obtained results revealed there is a significant impact on the overall growth of the Nigerian
capital market in Nigeria. Therefore, we reject the first null hypothesis and accept the second
null hypothesis, concluding that there is a significant impact on the overall growth of the
Nigerian capital market

4.3 Discussion of Findings

This comprehensive study meticulously explored the foreign direct investment and capital
market growth in Nigeria from 1990 to 2022, utilizing the ordinary least squares regression
technique. The statistical analysis revealed that out of the four hypotheses examined, only one
exhibited statistical significance throughout the study period. Remarkably, a substantial
relationship was established between market capitalization and the contribution of foreign
investment to Nigeria's gross domestic product. In contrast, the findings indicated that the total
value of transactions had no significant effect on the agricultural output's share of market
capitalization. Additionally, the GDP growth did not exert a meaningful influence on this output
share, nor did number of government securities/stocks listed demonstrate any considerable
impact. The results highlighted both positive and negative correlations among the variables
under investigation. A pronounced negative correlation of 0.581389 was identified between the
foreign direct investment inflows and the GDP growth, while a strong positive correlation of
0.927782 was observed between the foreign direct investment inflows and Market Capitalization
(MCAP). Furthermore, a weak negative correlation of -0.449219 was noted between foreign
direct investment inflows and GDP growth alongside a similar weak negative correlation of -
0.269052
These findings indicate the absence of serial autocorrelation within the model. It was concluded
that the variables—market capitalization, total value of transactions, total volume of transactions
and number of government securities/stocks listed —were non-stationary at level I(0) but
stationary at first difference I(1). Moreover, the foreign direct investment inflows was
determined to be non-stationary at first difference but stationary at second differences I(2). As a
result, the findings are free from spurious regression.

33
 CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
The study examined Foreign Direct Investment and Capital Market Growth in Nigeria.
One of the most important changes that has taken place in economic policies in Nigeria in the
last few years was the shift to the analysis of the impact of foreign direct investment with the
capital market and foreign policies, narrowing toward a common international economic order
and induced globalization. Foreign Direct Investment now represents a major for cross border
resource flow among counties. More than ever the multitude of FDI within the past years has
compelled discussion as to the desirability of multilateral investment agreement. Foreign Direct
Investment contributes to the economy in various ways;
Technology:
Technology transfer is one of the most vital benefits of FDI. In order to grow effectively,
developing countries especially Nigeria needs to develop new skills. Knowledge, institutional
and organisational structures and to master the technological process imported.
Trade:
The promotion of export is an important contribution made by multinational corporations.
Export by MNCs affiliates have been one of the fastest growing components of the world trade
in recent years. MNCs increases host countries competitiveness in many ways by giving
affiliates privilege access to a flow of goods, services and information within the corporate
system of raising skills and capabilities in the host countries.
5.2 Conclusion
The study examines Foreign Direct Investment and Capital Market Growth in Nigeria. The
findings revealed that economic growth is directly related to inflow of FDI and it is also

34
statistically significant implying that a good performance of the economy is a positive signal for
the inflow of FDI. Also the result show that FDI significant because the t- calculated was greater
than the t- tabulated value at 5% level of significance. This finding conforms the Granger
causality result which shows that foreign direct investment has an impact on the Nigerian Capital
Market. The real interest rate and real exchange rate were not statistically significant from the
findings.

5.3 Recommendation
In the light of the above findings the following policy recommendations are proposed to
encourage and improve the inflow of FDI in Nigeria.

 Government should provide adequate infrastructure and policy framework that will be
conducive for doing business in Nigeria so as to attract inflow of FDI.
 There is need for government to formulate policies that will be favourable to local investors
in order to complement the inflow of investment from abroad and also a favourable interest
rate.
 Given the causal link among exchange rate and export growth economically.
 The Nigerian economy should have favourable exchange policies.

35
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