Foreign Portfolio Investment, Capital Flight and Capital Market Performance in Nigeria
The need for nations and individuals and firms to achieve efficient resources allocation , optimize wealth and productivity explains the rationale for investment diversification which gives rise to various investment windows like foreign portfolio investments. The rising trend of foreign portfolio investments in Nigeria raises concerns among stakeholders due to the growing imbalance in the market participation ratio between foreign and local portfolio investors in the Nigerian capital market This study therefore examines the interrelationship among foreign portfolio investments, capital flight and capital market performance in Nigeria using expost-facto and descriptive research designs of annual time series data between 1970 and 2014 . Data for the study were sourced from various issues of Central Bank of Nigeria , Security Exchange Commission reports, Nigerian Stock Exchange reports, National Bureau of Statistics and International Monetary Fund. The study adopts Multi-regression Analysis, Vector Error Correction Models, Ratio and percentages for the data analysis after some preliminary tests. Study findings reveal that significant volumes of foreign portfolio investments, capital market performance and capital flight have been generated within the review periods in Nigeria. The Ordinary Least Square (OLS), Forecast Error Variance Decomposition (FEVD) and Impulse Response Function (IRF) results show strong and positive relationship , short and long run interactive responses and a unidirectional causality among the capital flight , market capitalization and foreign portfolio investment at 5% and 10% levels of significance respectively. The study concludes that there is significant symbiotic connectivity among the examined variables in Nigeria and consequently, recommends an urgent review of capital importation policy, a robust regulatory framework and a re-investment incentive to discourage indiscriminate repatriation of investment proceeds outside Nigeria.