Determinants of Investments in the Nigerian Economy: An Empirical Approach (1990 – 2013)

Abstract

This study examined the determinants of investments in the Nigerian Economy: An Empirical Approach, 1990-2013. The unsteady behaviour of investment in Nigeria has become a source of worry to all who are concerned about the growth of the country. Also, decisions whether to invest or not are constrained by numerous factors that must be identified and accorded due consideration in order to foster investments. In an attempt to achieve the objective, hypotheses were formulated and data for the study collected from the Central Bank of Nigeria Statistical Bulletin. The collected data were analyzed using E-view 7.1 statistical package in line with the OLS model. The Unit root test conducted with the Augmented Dickey Fuller (ADF) Unit root revealed that the variables were stationary at first difference rate 1(1). The existence of long-run relationship between investments, inflation rate, government expenditure, exchange rate and Interest rate were established with the Johansen Co-integration test. The Pairwaise granger causality shows causality running unidirectionaly from government expenditure to investment. The error correction model (ECM) indicated that short run disequilibrium in investments can be corrected at the speed of 67% per annun. These simply show that there is a significant relationship between the selected macroeconomic variables and level of investment in Nigeria. Also postulated by the study is the fact that only government expenditure has a significant influence on investment in Nigeria thus leading the study to conclude that investment in Nigeria is still at a very low level and should be encouraged to impact positively on the economy in general. Government should review her policies on investments and pay more attention to its determinant i.e. inflation rate, exchange rate, government expenditure and interest rate. They are essential ingredients for boosting investments in Nigeria.