Determinants of Investment in the Nigerian Economy: An ARDL Approach

Abstract

This study analysed the determinants of investment in Nigerian economy, applying the Autoregressive Distributed Lag Model to show both long run and short run relationships. The result shows that government expenditure (GEXP) is negative and significant at 1%. Statistically, this implies that a decrease in Government expenditure will reduce investment by -0.02% through capital expenditure in the economy. Exchange rate (EXHR) is negative both in the long run and short run. Although it is not significant in the long run, it is significant at 1%. Interest rate (INR) is negative and significant at 5% in the short run; however, in the long run, it is positive and significant at 1%. Inflation rate (INFR) is positive and significant at 1% in the long run which means that an increase in the general price level in the country will reduce the growth of investment in the economy by 0.02%, while it is negative by-0.04% and not significant in the short run. This could be as a result of effect of inflation which decreases the purchasing power of the consumers in the country due to a higher price of consumable goods and services. Therefore the researcher recommended that policy makers should work together with the government in formulating, evaluating and implementing new monetary policies that will have an efficient and effective impact on the Nigeria economy.