Economic Policy Uncertainty, Foreign Investment and Capital Market Growth in Nigeria

Rita Hiifan Akaa, Philip Terhemen Abachi, Isaiah Iortyom Udaah and Victor Ushahemba Ijirshar
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Rita Hiifan Akaa: College of Education, Katsina-Ala, Benue State, Nigeria
Philip Terhemen Abachi: Benue State University, Makurdi, Nigeria
Isaiah Iortyom Udaah: Federal University of Lafia, Nigeria
Victor Ushahemba Ijirshar: Benue State University, Makurdi, Nigeria

CECCAR Business Review, 2025, vol. 6, issue 7, 57-70

Abstract: This study investigates the impact of economic policy uncertainty (EPU) on capital market growth in Nigeria, emphasizing the mediating role of foreign investment. While prior research has treated EPU, foreign investment, and capital market dynamics separately, this paper contributes a novel perspective by analysing the transmission mechanism through which policy uncertainty affects foreign direct and portfolio investments and, in turn, capital market performance. Utilizing quarterly data from 2010 to 2023 and applying the Autoregressive Distributed Lag (ARDL) approach, the study incorporates interaction terms to assess short- and long-term effects. Findings reveal that while foreign portfolio investment (FPI) consistently supports capital market growth, prolonged EPU undermines its impact, especially over time. Foreign direct investment (FDI), however, shows limited influence across periods. The originality of this research lies in its integration of Real Option Theory to explain investment behaviour under uncertainty, offering significant implications for economic policy formulation and market regulation in emerging economies.

Keywords: economic policy uncertainty; foreign direct investment; foreign portfolio investment; capital market growth; investment hesitation; ARDL model (search for similar items in EconPapers)
JEL-codes: E22 F21 G11 O16 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ahd:journl:v:6:y:2025:i:7:p:57-70

DOI: 10.37945/cbr.2025.07.06

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