Nigerian Defence Academy Journal of Economics and Finance Vol 4 Issue 1 September 2020 195 FOREIGN PORTFOLIO INVESTMENT AND ECONOMIC GROWTH IN NIGERIA (1986-2018) Adofu, Ilemona and Adegoriola, Adewale E. Department of Economics Federal University of Lafia, Lafia, Nigeria Corresponding Email: adegoriolae@gmail.com Abstract his study examines the relationship between foreign portfolio investment and Nigerian economic growth from 1986 to 2018. The annual time series data for the study were sourced from the Central Bank of Nigeria and National Bureau of Statistics and the methodology employed for the analysis was Autoregressive Distributed Lag model. Evidence from results showed that current value and one period lag of Foreign Portfolio Investment (FPI) showed negative and insignificant impacts on the Gross Domestic Product (GDP). There is unidirectional causality between GDP and FPI. The causality flows from GDP to FPI. The study concludes that the level of fluctuation of FPI into Nigeria at the moment signifies that the economy needs total reform in order to gain the confidence of the foreign investors. The study therefore, recommends that government should double its effort at improving the investment. The government should support the prevailing investors through improvement in infrastructural development; provision of services and changes within the regulatory framework by relaxing laws on profit repatriation among others. Keywords: Foreign Portfolio, Investment, Economic Growth 1.0 Introduction Growth of foreign capital inflows to emerging world since the end of the 20th century has stimulated debate among the scholars like Markowitz (1952); Tobin (1958) and Blume (1970). This is attributed to change in different economic fundamentals and country specific conditions across the globe. Foreign capital flows play an important role in the economy of every developing and emerging country. These flows bridge the investment gap and fill the capital needs of a country at the domestic and international level. In the present era of globalization and financial liberalization, foreign investors from various countries of the world are willing to invest in the rest of the world. Foreign portfolio investment is becoming a common form of investment in many countries of the world. Foreign portfolio investors, as compared to foreign direct investors, are a short term investors and their purpose is to speculate the market boom. International capital inflows can play a useful role in development of every economy by adding to the savings of low and middle income countries in order to increase the pace of investment. However, foreign investment also can prove unproductive to developing economies by exposing them to disruptions and distortions from abroad, and by subjecting them to surges of capital inflows or massive outflows of capital flight (Sethi, 2013). Developing countries in particular, are striving to grow their economies. One of the ways to grow the economies is by attracting a substantial number of foreign portfolio investments. This notion is based on reported evidence by other authors that the benefits of transferring technology, international cooperation, and employment creation are better enhanced through attracting foreign portfolio investment (OECD, 2008 & UNCTAD, 2014). An increasing amount of foreign portfolio investment has been observed flooding into developing markets. Asiedu (2002) argues that each country has its own attractions. Therefore, what may drive foreign portfolio investment in one region may not drive it in another. Stable socioeconomic and political environment is fundamental in attracting foreign investment and making it beneficial to the host economy. It is on this background that Nigeria liberalized her economy and capital markets, as well as improved its capital market facilities and returned to stable democratic among other things. Portfolio investment is a recent phenomenon in Nigeria. It was from mid 1980s that Nigeria started to record any figure on portfolio investment (inflow or outflow) in her balance of payments account. The nil return on the inflow column of the account is attributable to the absence of foreign private investors in Nigeria’s economy. This is largely because of the non-internationalization of the country’s money and capital markets as well as the nondisclosure of the information on the portfolio investments in foreign capital/money markets (Ezeanyeji & Ifeako, 2019). Nigeria business environment is highly uncertain with inconsistencies in government policies and non-transparency of government operators. These unpalatable conditions discourage foreign investors from investing in the Nigeria business environment. It is in the light of these that this study seeks to empirically investigate relationship between T