INTERNATIONAL JOURNAL OF MANAGEMENT STUDIES AND SOCIAL SCIENCES REVIEW (IJMSSSR)
Portfolio Flows, Financial Market Integration, and Economic Stability in Nigeria
E-ISSN: 2566-7883
P-ISSN: 2782-2448
DOI: https://iigdpublishers.com/article/1680
This study examined the relationship between portfolio flows, financial market integration and economic stability in Nigeria over the period 1991–2024, with financial stability measured using a composite Financial Stability Index (FSI) proxy for economic stability. The study specifically investigated the effects of external reserve growth, economic growth, institutional quality, oil prices, non-performing loans, stock market performance, Treasury bill rates and trade openness on financial stability. The study employed the Autoregressive Distributed Lag (ARDL) bounds-testing approach to examine both the long-run relationship and short-run dynamics among the variables. The bounds test produced an F-statistic of 3.7237, exceeding the 5% upperbound critical value of 3.39, thereby confirming the existence of a longrun equilibrium relationship. The long-run results showed that trade openness had a positive and statistically significant effect on financial stability, while the Treasury bill rate exerted a negative and marginally significant effect. External reserve growth, economic growth, institutional quality, oil prices, non-performing loans and stock market performance were statistically insignificant in the long run. In the short run, stock market performance and trade openness had significant positive effects on financial stability, while economic growth had a marginally significant negative effect. The error-correction coefficient of −0.769958 was negative and significant; indicating that approximately 77% of short-run disequilibrium is corrected within one period. The diagnostic tests indicated that the model was free from significant serial correlation, heteroskedasticity, ARCH effects and specification problems. The study concludes that financial integration has both stabilising and potentially destabilising implications depending on the prevailing macroeconomic and financial conditions. It recommends managed financial integration, greater trade diversification, stronger capital market development, prudent interest rate management, enhanced macroprudential regulation, and institutional strengthening to improve Nigeria's capacity to absorb financial shocks and sustain economic stability.
Olurin Enitan Olurotimi PhD & Ajibola Olurotimi Bamitale PhD
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