Determinants of Domestic Investment in Nigeria: An Autoregressive Distributive Lag Approach

Abstract

This study examined the determinants of domestic investment in Nigeria for the period 1983 to 2015. The study specifically examined the effect of government expenditure, interest rate spread, growth rate of the economy, inflation rate, exchange rate and credit to the private sector on domestic investment in Nigeria. The ex-post facto research design was adopted to collect the required data. The data were analysed using the ARDL technique. The result of the analyses showed that government expenditure, interest rate spread, growth rate of the economy, inflation rate, exchange rate and credit to the private sector has no long run causality with domestic investment in Nigeria. Also, only government expenditure has short run causality with domestic investment in Nigeria. Based on these findings, the study recommends government expenditure should be focused on viable long term capital projects such as infrastructure and social amenities to sustain its short term causality and establish long run causality on domestic investment. Also, the regulatory bodies of the Nigerian financial sector should bridge the wide spread between deposit and lending rates to reduce the cost of borrowing in a way to promote domestic investment.

Keywords: Exchange rate, Investment, Inflation, Government expenditure, Credit to the private sector, Interest rate spread, Economic growth rate