Determinants Of Portfolio Investment On Balance Of Payment - Key Factors In Africa - A Case Study Of The Nigeria Investment Economy
Igberaese Francis Ilenloa
Department of Business Administration Institute of Continuing Education Benin City, Nigeria Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Purpose
The objective of the research is to study key variables that determine portfolio investment in Africa, using Nigeria as a case study. Portfolio Investment flows constitute an important part of the Balance Of Payments (BOPs) and it is for this reason, that it is crucial for policy makers to understand their behaviour and determinants, both to enable them evaluate the impact of policy decisions on the BOPs, and to be able to correctly forecast investment inflows.Hence, it set out to:
1) To determine if political instability/risk (environment) affects foreign portfolio inflow to Nigerian economy.
2) To ascertain the other factors, which determine foreign portfolio direct inflow in Nigeria and Africa both on the short run and in the long run.
Methodology of the Study
The study is a time series research, which coupled with literature, makes use of multiple regression econometrics models, using data between 1985 and 2008, and political instability was taken as dummy variable “1” because of during the period, it was either military regimes or elections marred by irregularities and tribunal annulments. Nigeria is taken to be ideal as the case study for Africa, being the largest in terms of population, and thus, under the ceteris paribus assumption, experiencing higher investment inflows. Moreover, most African economies have very similar economic conditions like that of the country studied. The result was interpreted after running the regression eight times in order to ensure the absence of autocorrelation and multi co-linearity. On the short run, D.W Stat= 2.05; R2 = 0.97021; adjusted R2 =0.940423 and F-Stat =32.56977. On the long run, R2 = 0.994061; DW Stat = 2.016; adjusted R2 = 0.973274 and F-Stat = 47.82149. !%-5% level of significant and the normal rule of thumb were used in analyzing results
Finding/Result
The results showed that in the short run, exchange rate risk, political instability/risk and market size or depth were significant in explaining portfolio investment in Nigerian BOPs, while in long run, only political risk is the determinant. Literature also point to endemic corruption as an impediment to investment inflows.
Policy Implication: Since in the words of Keynes “We are all dead on the long run”, low or exchange rate instability and low business volume (small market) could led to BOPs problem, while the long run political instability is even more of dying consequence.
Lessons for Ghana and Africa
The recommendation are serious efforts to consolidate the newly found democracies, in which Nigeria and other Africa countries should emulate the Ghana and South Africa democracies; the should be serious wars against corruption across the continent and effort to strengthen exchange rate and stimulate businesses across the continent.
Keywords: Political Risk, Exchange Rate, Variables, Openness, Trade and Returns
