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The study examines the impact of agricultural credit on agricultural output in Nigeria from 1980-2010. The research design adopted for this study is the analytical/ causal research design which establishes relationship between the dependent and independent variables. To ascertain the relationship that exist between the dependent and the independent variables, secondary data were sourced from central bank statistical bulletin. Descriptive statistics and correlation matrix analysis were used to check the direction of movement among the variables. The study adopted the Ordinary Least square  (OLS) regression analysis method to test for the long run relationship between the dependent and the independent variables. The statistical package used is the EVIEWS 7.0 econometric software package. The findings of the study were that deposit money bank and government expenditure exert a significant positive influence on agricultural output in Nigeria. Base on the findings, we therefore recommend that government should encourage deposit money banks to allocate and disburse loans to the agricultural sector, especially to the rural farmers.






Nigeria in the last few years had clamored for foreign portfolio investment. This is believed to be a facilitator of stock market development, which leads to economic development and industrialization of the economy in the long run (Adeleke, 2004). Foreign portfolio investment means the purchase of shares in a foreign country where the investing party does not seek control over the investment. A portfolio investment typically takes the form of the purchase of equity (preference share) or government debt in a foreign stock market, or loans made to a foreign company.

Foreign portfolio flows are commonly known as Foreign Institutional Investment refers to the flow of capital made by individuals and institutional investors across national borders with a view to creating an internationally diversified portfolio. Unlike Foreign Direct Investment (FDI) flows which refer to that category of international investment aimed at obtaining a lasting interest by a resident entity in one economy in an enterprise resident in another economy by way of exercising significant control over its management, foreign portfolio investment is the entry of funds into a country where foreigners make purchases in the country’s stock and bonds markets for the sole purpose of financial gains and does not create a lasting interest in the management control.

It is positively influenced by high rates of returns and reduction of risk through geographical diversification and the return on FP1 is normally in the form of interest payments or non – voting dividend. It involves the passive holdings of securities and other financial assets which do not entail active management or control of the securities issuers.

Foreign portfolio investment (FPI) is an aspect of international capital flow comprising the transfer of financial assets: such as cash; stock or bonds across international borders in need of profit. It occurs when investors purchase non-controlling interests in foreign companies or buy foreign corporate or government bonds, short-term securities, or notes. Thus, just as trade flows result from individuals and countries seeking to maximize their well-being by exploiting their own comparative advantage, so too, are capital flows the result of individuals and countries seeking to make themselves better off, moving accumulated assets to wherever they are likely to be most productive (ERP, 2006).

In the late 1980s a distinguished international study group for the World Institute for ‘Development Economics Research (WIDER) headed by Sir Kenneth Berrill, forcefully argued for developing countries to liberalize their financial markets in order to attract foreign portfolio equity flows. The study group’s essential argument was that there was a huge amount of financial capital available in developed countries through pension and investment funds that could be attracted to developing countries provided they liberalized their markets externally and developed their stock markets internally. Although the report noted the lack of a clear connection between economic growth and stock market development, it presented a large number of benefits that developing countries can reap. These included:

  • an additional channel for encouraging and mobilizing domestic savings;
  • improvements in  the productivity of investments through market allocation of capital: and
  • increased managerial discipline exercised though the market for corporate control (WIDER, 1990).

Portfolio investment is a recent phenomenon in Nigeria. Up to the mid 1980’s, Nigeria did not record any figure on portfolio investment (inflow or outflow) in her balance of payment account. The nil returns on the inflow column of the account is attributable to the absence of foreign portfolio investors in the Nigerian economy. This is largely because of the non-internationalization of the country’s money and capital markets as well as the non-disclosure of information on the portfolio investments in foreign capital/money markets (Obadan, 2004).

Following a careful review of the consequences of the Exchange Control Act of 1962 on the economy, after some thirty three years of its operations, Nigerian authorities came to the conclusion that the Act had not brought the economy any substantial benefits. The Act was judged inimical to a market driven economy, new policy government had pursued since 1986, with the deregulation of the economy. While equity investment trickled into Nigeria as a result of the Exchange Control Act of 1962, Portfolio Investments dried up, because portfolio investments required an investment climate, which guarantees speedy “free entry” and “free exit” of investment funds in a flash.

The investment climate in Nigeria engineered by the Exchange Control Act of 1962 did not guarantee the speedy mobility of funds across international borders. It took the authorities more than three decades to realize that protection of the economy in a world striving to dismantle economic frontiers had not paid off, and that the capital market being a major player in the mobilization of funds for investment has to be liberalized and modernized to enable it capture enough resources for the economy from within and from outside. The Exchange Control Act of 1962 was identified as a major constraint on the growth of the Nigerian capital market. Accordingly the Act was blown away with gale force in 1995, •n the strong wind of deregulation, which swept across the Nigerian Macro-economic policy arena, from the beginning of the last quarter of 1986 (Onoh, 2002).



Although FP flows help supplement the domestic savings and augment domestic investments without increasing the foreign debt of the recipient countries, correct current account deficits in the external balance of payments’ position, reduce the required rate of return for equity, and enhance stock prices of the host countries, yet there are worries about the vulnerability of recipient countries’ capital markets to such flows. FPI flows, often referred to as ‘hot money’ (i.e., short-term and overly speculative), are extremely volatile in character compared to other forms of capital flows.

Foreign portfolio investors are regarded as ‘fair weather friends’ who come in when there is money to be made and leave at the first sign of impending trouble in the host country thereby destabilizing the domestic   economy   of   the   recipient   country.   Often,   they   have   been   blamed   for exacerbating small economic problems in the host nation by making large and concerted withdrawals at the slightest hint of economic weakness. It is also alleged that as they make frequent marginal adjustments to their portfolios on the basis of a change in their perceptions of a country’s solvency rather than variations in underlying asset value, they tend to  spread  crisis  even   to  countries  with  strong  fundamentals  thereby  causing ‘contagion’ in international financial markets (FitzGerald, 1999).

Further, it is feared that 500 worth of FPI inflows may build up sizeable surpluses on a country’s balance of payments, create excess liquidity and hence exert upward pressure on the exchange rate of the domestic currency or on domestic prices. The fear of foreigners capturing a large part of the securities’ market also associated with FPI flows. Accordingly it is viewed that as securities markets in developing countries like Nigeria are narrow and shallow and as the foreign investors have command over considerable funds and occupy a dominant position in the capital market.

FPI flows have the potential for major capital flight out of Nigeria driving the prices down sharply and hence inducing considerably instability in the Nigeria stock market. The danger of abrupt and sudden outflows inherent with FPI flows have been highlighted in several research studies. Froots, O’Connell, and Seasholes (2001). These issues have made the policy makers all the more wary about FPI flows as questions have begun to be raised about the wisdom in promoting such flows

However, the issues of whether FPI flows affect stock market returns or the other way round is a matter of controversy. It has been perceived in some quarters that FPI flows are the major drivers of stock markets in Nigeria and hence a sudden reversal of such flows may harm the stability of the market. Contrary to this belief, it is viewed by others that FPI flows react to the existing crisis in the stock market, possibly exacerbating it rather than causing it. The implication of this is that knowledge and understanding foreign portfolio investment and the Nigerian stock market development is imperative to save warranted an empirical study of this nature.


To this end, the study intends to answer the following questions:

  1. What is the relationship between foreign portfolio investment and stock market development in Nigeria?
  2. What is the relationship between exchange rate on stock market development in Nigeria?
  3. What is the relationship between interest rate on stock market development in Nigeria?



Acknowledging the role of foreign portfolio investment in the mobilization of funds for market development, this study presents an overview of the nation’s foreign investment activities and stock market development. This would be made possible by relating the indicators of FPI with the proxies of stock market development. Specifically, the study seeks to achieve the following objectives:

  1. to determine the relationship between foreign portfolio investment and stock market development in Nigeria;
  2. to ascertain the relationship between exchange rate has on stock market development in Nigeria; and
  3. examine the relationship between interest rate on stock market development in Nigeria.


The hypotheses of this study is stated in the null and alternative forms as follow;

  1. HO1: There is no significant relationship between foreign portfolio   investment and stock market development in Nigeria.

HA1:    There is a significant relationship between foreign portfolio     investment and stock market development in Nigeria.

  1. HO2: There is no significant relationship between exchange rate and stock                                   market development in Nigeria.

HA2:    There is a  significant relationship between exchange rate and stock                                     market development in Nigeria.

  1. HO3:    There is significant relationship between interest rate and stock market                                development in Nigeria.

HA3:    There is no significant relationship between interest rate and stock market                           development in Nigeria.



The research work is concerned with the empirical analysis of the impact of foreign portfolio investment on stock market development using stock market indicator. This research work covers a time period of 25 years (1986-2010).



It is axiomatic to say that nothing in the real world is absolute and as common to all other this research was faced with some unavoidable constraints.

The major limitations of this study relates to data sourcing. There was difficulties in obtaining relevant data from their various sources.

Secondly, because of using proxy variables, the conclusion of this study may not be absolute hence the need for further research in this area in Nigeria.



As a result   of   the   constantly   changing   environmental,   economic   and   political environment, this study will help produce or generate current and up to date information regarding   the state of the Nigerian stock market in relation to how foreign portfolio investment flows through the stock market mechanism to engender the growth of our economy thereby knocking off every form of obsolete knowledge that existed in this regard. This study will help policy makers to know the extent to which their policies towards making sure that the Nigerian stock market lives up to it bidding have performed.

Furthermore academicians would find the outcome of this research useful; because it updates the already existing knowledge on foreign portfolio investment and stock market development. The findings of this study might also establish the basis for further research in this area.


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