Foreign Portfolio Investment Creates Positive Spillovers, But How?

Abstract

Granted that there are beneficial effects of portfolio capital flows for employment generation, what are the channels of effect? Identifying the channels should beneficially impact policy quality, and can come about through a disaggregation of the components of portfolio capital. In this study, the search for the channels of effect is modeled in a reduced form, linear manner, regressing employment on portfolio capital’s components while controlling for jobs consequent upon growth of the economy. It turns out that the coefficients of all the component parts are non-trivial. In addition, debt by way of bonds and money market instruments proved positively related to employment in a significant manner, providing a much hoped-for vista for further action on the employment generation front. Equities exhibited the reverse effects, while the notion of jobless growth, feared for Nigeria for quite a while, was confirmed. It was recommended that Nigeria should locate consciously on the technology continuum in the production process, and encourage bonds and money market instruments. Further study was recommended on the mechanism of effect.