Interest Rate Liberalisation and Investment in Nigeria

Abstract

This study examined the impact of interest rate liberalization on investment in Nigeria from 1986-2023 using data from the CBN Statistical Bulletin. The data were subjected to various diagnostic tests such as Unit Root, ARCH, Normality, among others, and the result revealed that the data were suitable for estimation. The dependent variable was represented by Gross Fixed Capital Formation used as a proxy for investment, while Exchange Rate, Government Expenditure, Interest Rate, Inflation and Money Supply were the independent variables. The Auto Regressive Distributed Lag (ARDL) estimation technique was employed to test the short and long run impact of the independent variables on the dependent variable. The ARDL long and short run results revealed that Government Expenditure and Interest Rate significantly impacted on investment during the period under review showcasing the importance of these variables in promoting investment in Nigeria. The result further revealed the need to. strengthen policies that would promote stable exchange and inflation rate that would enhance domestic investment. Based on the findings of this study, it is pertinent to maintain macroeconomic stability through sound monetary and fiscal policies as well as strategic investments in infrastructure, education, and regulatory reforms, for a more robust and diversified economy.