Macro – Economic Policy and Investment Gowth in Nigeria: Autoregressive Distribution Lag Model

Abstract

Abstract

The dwindling profile of Nigeria investment growth is a clear point which speaks volumes of the position of Nigeria fiscal and monetary policy in the economic management. Nigeria economy over the years have experienced a handful of investment, but despite the funds invested by both the public and the private, the investment performance in Nigeria are still epileptic in nature, the infrastructures to improve commerce with the system or social amenities to raise the welfare of average citizen of the economy are not there yet. Therefore, the study examined the effect of macroeconomic policy on investment growth in Nigeria between 1981 and 2019. Macroeconomic policy was proxied by fiscal and monetary policy while investment growth was proxied by growth rate of gross capital formation. With ex-post facto research design, an autoregressive distributed lag model was utilized. The study established an occurrence of long-run equilibrium relationship among macroeconomic policy and investment growth indicators. The empirical findings shows that while fiscal balance is positively and statistically significant to influence investment growth [β = 0.000162; P – value = 0.0435], monetary policy rate is negative and statistically insignificant to effect Nigeria investment growth [β = -0.0112; P – value = 0.7165]. More so, real exchange rate is positive and statistically significant to influence Nigeria investment growth at 5% level [β = 0.0052; P – value = 0.0013]. The findings of the study hold it firm that fiscal policy plays an important roles in enhancing a continuous growth in the process of Nigeria investment. While it is also pertinent to note that exchange rate also stimulate investment growth in Nigeria, however, monetary policy driver of investment growth has been ineffective. It is therefore, recommended that Central Bank Monetary Policy on monetary policy rate should be revisited since a lower monetary policy rate can have a statutory effect on general lending rates. Stability of monetary policy rate is crucial for investment growth, hence stable and effective monetary policy rate should be the utmost concern of the monetary policy authority.  

Keywords:       Fiscal Policy, Monetary Policy, Investment, Gross Capital Formation, Autoregressive Distributed Lag Model, Growth