Comparative Econometric Analysis on the Impact of Portfolio and Direct Investment in Nigeria

Abstract

This study investigates the comparative econometric analysis on the impact of portfolio and direct investment in Nigeria, focusing on key indicators such as return on direct investment inflows (RDI), Sharpe ratio, expected portfolio return, portfolio risk variance, and information ratio. Using annual data from 2000 to 2024 and applying the ARDL framework, the findings reveal the existence of a long-run relationship between both forms of investment and economic growth. Specifically, portfolio risk variance showed a stronger and more stable positive impact on RDI, while SHR demonstrated significant but volatile effects, highly sensitive to exchange rate fluctuations and inflationary pressures. The results suggest that while both investment forms are critical for Nigeria’s growth trajectory, sustainable economic development depends more on stable RDI inflows. Policy recommendations emphasize improving macroeconomic stability, strengthening regulatory frameworks, and creating investment-friendly environments to balance and optimize the benefits of both portfolio and direct investment in Nigeria.