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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Rita Hiifan AKAA & Philip Terhemen ABACHI & Isaiah Iortyom UDAAH & Victor Ushahemba IJIRSHAR, 2025. "Economic Policy Uncertainty, Foreign Investment and Capital Market Growth in Nigeria," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 6(7), pages 57-70, July.
    • Handle: RePEc:ahd:journl:v:6:y:2025:i:7:p:57-70
    DOI: 10.37945/cbr.2025.07.06
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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