Foreign Direct Investment and Capital Market Development: The Moderating Impact of Inflation

Abstract

The study examines the moderating impact of inflation on the relationship between foreign direct investment (FDI) and capital market development in Nigeriafrom 1985 to 2019. Ex-post facto research design was adopted by the study while Ordinary least square was used to determine the relationship between the variables. The study found that foreign direct investment has positive significant impact on market capitalization while moderated foreign direct investment has positive but insignificant impact on market capitalization.From the findings, the study concludes that foreign direct investment is a significant factor that affected Nigeria capital market but if foreign direct investment is moderated, it has insignificant impact on Nigeria capital market. Based on this, the study recommends that the interactive effects explain that FDI has a positive impact on MC and the inflation rate insignificantly influences the MC. Therefore, if at least a positive market capitalization is to be maintained, the rate of inflation should at least be at the threshold level if not, there will be an insignificant market capitalization. With the relevance of inflation in this study, the government should be very proactive in enacting policies to ensure moderate inflation rate that would draw foreign investors and pin down the already established ones.