Impact of Private Domestic Investment on Economic Growth in Nigeria

Abstract

One of the major economic problems in the developing nation like Nigeria is low domestic investment finance. The vicious cycle of low domestic investment finance as a result of low savings lead to low capital formation and this has become a cankerworm which has eaten deep into the fabric of the Nigerian economy. Despite government policies such as export promotion and bank recapitalization policy at boosting investment, all these efforts have not yielded appreciable results in order for domestic investment to increase economic growth. It is against this back drop that the study examined the impact of private domestic investment on economic growth in Nigeria. The objectives of this study were to; examined how private domestic investment and private sector credits from financial institution affect economic growth. The study covered the period of 1980-2016 with the analytical techniques relying on Kwiatkowski–Phillips–Schmidt–Shin (KPSS) stationarity and Johansen system cointegration tests as well as Error Correction Mechanism (ECM). The result of the KPSS stationarity test showed that the variables are first difference stationary. More so, the Johansen test results for cointegration indicated that the variables are cointegrated and as such have the capability of moving together in the long run. The parsimonious Error Correction Mechanism showed that private domestic investment is significantly related to economic growth. The result indicated that holding other variables, 10 percent increase in the current value of private domestic investment, on the average, stimulates economic growth by 2.08 percent. Similarly, the value of financial sector credit to private sector is positively related to economic growth. On the average, a percent increase in financial sector credit to private sector boost growth in Nigeria by 2.27 percent. Owing to the findings, it is recommended among others that Private domestic investment should be promoted across key sectors of the economy, especially agriculture and manufacturing activities in order to stimulate rapid and sustained growth in Nigeria.