FOREIGN CAPITAL AND CAPITAL MARKET DEVELOPMENT IN NIGERIA
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1    Background to the Study                     
1.2     Statement of the Research Problem            
1.3    Objective of the Study                        
1.4    Hypotheses of The Study                    
1.5    Significance of Study                        
1.6    Scope of Study                             
1.7    Limitation of The Study                        
CHAPTER TWO: LITERATURE REVIEW
2.1    Introduction                            
2.2    Brief Overview of the Nigeria Capital Market        
2.3    Concept of Foreign Portfolio Investment (FPI)        
2.4    Composition of Foreign Direct Inflow In Nigeria    
2.5    Relevance of Foreign Capital                
2.6    Theories And Determinants of Portfolio Investments In Emerging Capital Market            
2.7    Theory of Financial Market Development And Private Capital Flows                    
2.8    Current Account Deficits And Financial Development
2.9    Relationship Among Capital Flows             
2.10    Empirical Evidence of Foreign Investment And
Capital Market                            
CHAPTER THREE: METHODOLOGY
3.1    Introduction                            
3.2    Sources of Data                            
3.3    Method of Data Analysis                    
3.4    Population of the Study                    
3.5    Model Specification                        
CHAPTER FOUR: EMPIRICAL ANALYSIS
4.1    Introduction                            
4.2    Unit Root Analysis                           
4.3    Cointegration Test                        
4.4     Dynamic Analysis                        
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS AND CONCLUSION
5.1     Summary of Findings                        
5.2     Recommendations                        
5.3     Conclusion                                
Bibliography                            
Appendix                                
 CHAPTER ONE
INTRODUCTION

1.1    BACKGROUND TO THE STUDY
    Foreign capital investment refers to the flow of capital from one country to another in exchange for significant ownership stakes in domestic companies or other domestic assets. It is simply a process whereby foreigners take an active role in management as a part of their investment. It typically works both ways, especially between countries of relatively equal economic stature (Wagh, 2013).    
    Foreign capital comes in different forms and shades such as foreign direct investment (a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country), foreign portfolio investment (a passive investment in the securities of another country such as stocks and bonds, foreign international investment (representing investments that are being made by the foreign investors in the commercial banks in Nigeria, especially the aftermath of the recent banking sector reconsolidation) and external commercial borrowings (Wagh, 2013; Chousa, Tamazian, and Vadlamannati, 2008).
    According to Wagh (2013), following the current trend of globalization that has since reduced the entire globe to a small village, many multinational firms have ceased the opportunity by establishing investments in a great number of countries, which many see as a positive sign and a source of future economic growth and development of the countries involved.
    It is also hoped that with the current trend of development in the Nigerian capital market, coupled with the various supports being received from the government, the revised financial regulation framework and the strict adherence to corporate governance policy, the country is set to become a haven of foreign capital investments which will further help to deepens the activities of the stock exchange and thus fast track the quest for rapid economic growth and development of the country.
    Foreign capital has significant role for every national economy, regardless of its level of development. For the developed countries it is necessary to support sustainable development. For the developing countries, it is used to increase accumulation and rate of investments to create conditions for more intensive economic growth. For the transition countries, it is useful to carry out the reforms and cross to open economy (Edwards, 2004), to cross the past long term problems and to create conditions for stable and continuous growth of GDP (Razin, 2001), as well as integration in world economy (Boskovska, 2006; Lensik, 1999). However, to realize the potential existing in the developing countries, foreign capital plays a very crucial role. Capital inflow can help developing countries with economic development by furnishing them with necessary capital and technology. Capital flows contribute in filling the resource gap in countries where domestic savings are inadequate to finance investment. Capital inflows allow the recipient country to invest and consume more than it produces when the marginal productivity of capital within its borders is higher than in the capital-rich regions of the world. Capital inflows facilitate the attainment of the millennium development goals (MDGs) and the objective of national economic, empowerment and development strategy (NEEDs). As the economy becomes more open and integrated with the rest of the world, capital flows will contribute significantly to the transformation of the developing economy (Levin, 2001). According to (Calvoet al., (1994), Calvo and Reinhart (2000), Hutchison (2002), Ito (2006) Jitter (2003) and Kaminsky (2003), capital inflows are necessary for macroeconomic stability as capital inflows affect a wide range of macroeconomic variables such as exchange rates, interest rates, foreign exchange reserves, domestic monetary conditions as well as saving and investments. They explain further that some commonly observed effects of the capital inflows are stock market and real estate boom, reserve accumulation, monetary expansion, production, consumption and real exchange rate appreciation.
1.2     STATEMENT OF THE RESEARCH PROBLEM    
    This study in principle develops no new theories but complements and applies the existing methodology to a set of new data in the Nigerian context, with the aim of determining the current relationship between foreign capital and capital market development.  Thus, the specific research questions to be addressed in the study are:
(i)    What is the relationship between foreign capital and capital market in     Nigeria?
(ii)    Is there any relationship between foreign portfolio investment and market capitalization?
(iii)    What is the relationship between Foreign Direct Investment and market capitalization?
1.3      OBJECTIVE OF THE STUDY
       The main objective of the study is to examine the relationship between foreign capital and capital market development in Nigeria over time. However, the specific objectives are to:
To examine the relationship between foreign portfolio investments on key macroeconomic variables such as; exchange rate, financial openness, interest rate and real GDP in Nigeria.
1.5    HYPOTHESES OF THE STUDY
The following are the hypotheses of the study:
Foreign portfolio investment has no significant relationship in key macroeconomic in Nigeria.
1.5    SIGNIFICANCE OF STUDY
i)    The study will be very relevant to the government and policy makers in Nigeria, as it will provide them useful information on how foreign capital has affected the development of the Nigerian capital market and to formulate appropriate policies and programmes that will enhance foreign capital inflow to the country and hence, promote economic growth and development of Nigeria.
ii)    the study will also be very useful to academia, researchers, students of     finance, economics and all allied disciplines, as it will provide them strong     data base to carry out further studies in the same area, if they so wish.
1.6    SCOPE OF STUDY
    The study is designed to cover a period of 25 years (1986 to 2012),and relevant data will be sourced from the Federal Office of Statistics, the Nigerian stock exchange facts book and the Central Bank of Nigeria Statistical Bulletin (2010, 2011).  The methodology to be used in this study is the ordinary least squared econometric technique (OLS).
1.7    LIMITATION OF THE STUDY
The accuracy and reliability of the source of data might affect the overall result of the study. However, effort will be made to reduce the error to the barest minimum and ensure that the results are accurate.
    Secondly, the time frame for a study of this nature was not sufficient, as the researcher has to carry out the study simultaneously with normal academic work. This of course was a major limitation of the study.