Determinants of Domestic Investment: Evidence from Nigeria

Abstract

This study identified and examined key economic variables that determine domestic investment in Nigeria. The data used was obtained from Central Bank of Nigeria Statistical Bulletin and World Development Indicators for the period between 1991 to 2021. The Augmented Dickey Fuller unit root test was employed to determine the stationarity of the variables and the results revealed that the variables were stationary at levels and first difference. The ARDL model was then employed to determine the long run and short run dynamics of the variables. Findings shows that a long run relationship exists among the variables as the F statistic from the bounds test exceeds the upper bound critical value at 1% and 5% levels of significance respectively.  Furthermore, short run dimension of the result shows that domestic savings significantly increased investment in Nigeria while trade openness, inflation and government expenditure significantly reduced domestic investment. In the long run however, the result shows that the Nigerian domestic investment dynamics only responds significantly but negatively to trade openness.  The study recommends the need for government to formulate and implement effective trade and monetary policies that will ensure positive impact on the Nigerian investment. It also recommends that government should increase spendings on capital expenditure, this will create enabling environment for Nigerian domestic investors to succeed.