Abere Benjamin Olusola, Emmanuel Ilabeshi

Keywords: Foreign direct investment, stock market, interest rate, inflation, electricity supply

Abstract

This study examines the impact of macroeconomic factors and Foreign Direct Investment on stock market development in Nigeria using annual time series data. The study applies the Autoregressive Distributed Lag (ARDL) model to capture both the short-run and long-run dynamics among the variables. The motivation for the study stems from the persistent underperformance and volatility of the Nigerian stock market despite various financial and macroeconomic reforms. The unit root test confirms a mixed order of integration, I(0) and I(1), justifying the use of the ARDL approach. The ARDL bounds test reveals the existence of a long-run
relationship among the variables. Long-run estimates show that FDI,
exchange rate, interest rate, inflation, and electricity supply all have varying impacts on stock market development, with electricity supply exhibiting a consistently strong positive effect. Exchange rate and FDI show mixed effects, while interest rate generally exerts a negative influence. Inflation displays weak and inconsistent effects. The short-run results indicate that shocks to the explanatory variables significantly affect stock market performance, with adjustment toward equilibrium confirmed by a significant error correction term. The study concludes that stock market development in Nigeria is strongly influenced by macroeconomic
stability and infrastructure quality, particularly electricity supply. The
study recommends stable macroeconomic policies, improved management of foreign investment, controlled interest rates, and significant investment in power infrastructure to enhance stock market performance and overall economic development.

Author Biography

Abere Benjamin Olusola, Emmanuel Ilabeshi

Department of Economics, Edo University Iyamho, Nigeria

Email: [email protected]

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