In recent times, there has been growing concern about the rising but
volatile rate of investments in Nigeria. Thus concern stem from the
fact that investment plays a dominant role in stimulating growth.
The study buttress on the overview and empirical analyses into the
determinant of investment in Nigeria in other to achieve the
objective hypotheses which was stated with the purpose of achieving
current and future stable and upswing of investment by readdressing
problems of investment, as highlighted in the statement of problem.
The study used investment as dependent variable and interest rate,
inflation, foreign direct investment, degree of trade openness, gross
domestic product, and money supply as independent variable. In
analyzing the data, economic model of multiple regression using
ordinary least square (OLS) techniques was employed. t- test was
conducted to evaluate the significant of independent variables in the
model not statistically significant at 5 percent level. Auto correlation
and heteroscedaticity test were employed as the second order test.
TABLE OF CONTENTS
Title Page i
Approval Page ii
CHAPTER ONE: INTRODUCTION
1.1 Background of study 1
1.2 Statement of the problem 6
1.3 Research Question 8
1.4 Objective of the Study 8
1.5 Statement of Hypothesis 8
1.6 Significance of the Study 8
1.7 Scope / Limitation of the Study
CHAPTER TWO: LITERATURE REVIEW
2.1 Literatures Review 10
2.2 Empirical Literatures 24
2.3 Limitations of Previous Studies 32
CHAPTER THREE: Research Methodology 34
3.2 Model Specification 34
3.3 Multiple Regressions 35
3.4 Method of Evaluation 36
3.5 Data and Software Packages 37
CHAPTER FOUR: PRESENTATION AND ANALYSIS
4.1 Presentation of Regression result 38
4.2 Analysis of the Regression result 39
4.3 Evaluation based on statistical Criteria 41
CHAPTER FIVE: SUMMERY, CONCLUSION AND
5.1 Summary of Findings 46
5.2 Recommendation 46
5.3 Conclusion 47
1.1 Background of the Study
The Nigeria economy has witness a slow pace growth of less
5 percent in the decades. Various reasons have been advanced to this
development but the most apparent have been poor investment
climate in the economy and this has been attributed to the low
available investable funds.
The stimulation of sustained economy growth requires a
balance investment in physical and financial assets human and social
capital as well as natural and environmental capitals.
Nigeria has been classified as low saving and even lower investment
economy (Ajakaiye 2002) one of the principal objectives of the
Nigerian government under the 1999 democratic dispensation is
fostering of sustained economic growth. Over the years, the
government has been in the driver’s seat in growth the government
economy. But lessons of experience have shown that government
cannot regulate the economy effectively. A typical example has been
the shift under the National economic empowerment and
development strategy (NEEDS) which has recommended the need to
restructure and deepen the financial system. Some economist like
Mc Kinnon and Shaw (1973) said that rising investment alone is not
sufficient enough to bring about growth and the role of financial
institutions is very vital. In particular the new express of that the role
of capacity fund is very critical to the success of any endeavor
(World Bank 1998). In this regards, it is therefore important to
investment the determinants to investment in economy in the past
Banking sub sector in Nigeria has remained foreign in rural
areas. But recently the establishment of community banks (now
micro finance banks) has been, to
Deepen their operation in rural areas. These banks with government
assistance give loans and mobilize savings from rural areas for
further investment in Nigeria.
In addition government have tried to provide necessary
infrastructure in rural areas reduce the rate of rural- urban migration
for the purpose of compelling the rural population to take agriculture
to grater height as it was in past 38 years, however, the
diversification of the various sectors of the economy has been the
main objective of the government. This is to increase employment
which will increase income and saving for investment.
But the process so far have not been adequate because of
political instability and police inconsistence which range from
corruption of political administrators and negative effects of
Diversification of different key sectors of the economy like
agriculture and industry increase employment, incomes,
consumptions, savings demand and generally, aggregate investment
level that will broaden and Deeping the society standard of living.
But dismissal growth record in most African countries relatives to
other region of the world has been of concern to economist. (World
This is because the growth rate registered in most African
countries including Nigeria is often not commensurate with the level
In Nigeria for instance, the economy witnessed tremendous growth
in the early and late 1970(World Bank) as a result of the oil boom.
This increased investment especially in the public sector, but
with the collapse of the oil market prices in the early and mid-1980s
investment fill, thereby causing a fall in economic growth. For
example, during the investment boom, gross investment as a
percentage of GDP was 16.8% and 31.4% in 1974 and 1976
respectively ,where as it decline to 9.5 and 8.7 percent in 1984 and
1985 due to the depression (world bank).
Although the rise in oil prices during the 1990-1991 periods
was supposed to spark off an investment but that was not the case in
Nigeria. The Nigeria military government for instance was
inexperience in formulating economy policies and thus,left that task
to bureaucracy (Idoko 1996). The unit was that investment decisions
which were undertaken with great decline, the government in 1986
adopted IMF World Bank structural adjustment programmer (SAP)
with a view in providing stable macro-economic and investment
To this end interest rate that were previously fixed and
negative in real terms were replaced by an interest rate regime which
is driven by market force. The policy shift de-emphasized direct
investment stimulation through low interest rate and encourages
savings mobilization by decontrolling interest rate (World Bank
1996). Consequently, the objective of enhanced investment and
output growth was not realized as the countries investment failed to
erase to anything near the level it has reached in the 1970s.
Although successive government has implemented policies
and strategies raising the level of savings and investments, this
policy so far has been erratic as a result of the recent change in
government as a result of political instability.
In addition, the experience of East Asia countries suggested
that an investment rate of between 20 and 25 percent could endanger
growth rate of between 7 and 8 percent. Strategically evidence
reveals that output represented as the GDP in Nigeria shows a
picture growth after the civil war, following the oil boom of the
1970 such that growth rate stood at 21.3% in 1971(Bage 2003).
Therefore, for Nigeria to register increase in growth and
development there is need to increase the private investment that
will lead to higher growth, as was the case of Asian countries.
Finally an analysis of domestic investment require a simultaneous
link to GDP as aggregate factor interest rate and other unique
variables that reacts to fluctuations in investment like debt ratio,
business environment real exchange rate government expenditure
and provision of infrastructure etc.
1.1 Statement of the Problems
Domestic investment in Nigeria has been constrained by
These factors range from the following:
Low capital stock: investment can never be successful if the capital
The poor level of capital stock has been as a result of poverty
which decreases domestic saving resulting from decline in real precapital inadequate infrastructure entrepreneurial activities is
discouraged more by the absence of basic infrastructure like
electrify, good roads and communication (Green 1991).
Economic and social infrastructure are poverty developed in
Nigeria thus domestic and foreign investors are way of investing in
countries where basic requirement are inadequate political instability
and policy inconsistency, due to the transitional nature of the
Nigerian government investment have been derailed.
Interest rate more inversely with investment that is as interest
rate increase is falling investment rises. But Nigeria in interest rate
of about 17.69 year ended 2006 did not account for upswing in
private investment because of inappropriate administration and
The growth of domestic and external debt over the year has
negatively affected the level of investment in Nigeria. Nigeria debt
burden between 1980-2011 has effect for the economy and the
welfare of the people. for example, Nigeria was owing the
international community as act of 2007 was up to billion while (US)
which could have been used for more allocation of basic
requirement that would aggravate investment (Idoko 1966).
Exchange rate fluctuation has also contributed to low
propensity to invest in Nigeria by the foreigners. This is because of
low manufacturing of export goods. Capital which would have
ordinarily increased domestic exchange rate (Jhigan 2005).
Therefore, instead of investing domestically the greater percentage
of Nigeria’s proffer investing abroad where their money would
Huge cost of raw materials and inadequate developed nature
of domestic raw materials for investment. Therefore government
should give incentives to encourage the investors give holding and
reduction in duties changed during import of raw materials.
1.2 Research Questions
The study resolves around answering the following question:
What is the determinant of investment in Nigeria?
What is the relationship between inflation rate and investment?
1.3 Objective of the Study
The objective of the study will be;
To determine the factors that determined investment in
To determine the relationship between inflation rate and
investment in Nigeria.
1.4 Statement Of Hypothesis
The research study will be conducted under the hypothesis frame
Ho: there is no factor that determines investment in Nigeria.
Ho: There is no relationship between inflation rate and investment in
1.5 Significant of the Study
The importance of the study lies in the fact that will provide
an insight into the factors that determined investment in Nigeria.
It wills also further identity the reason why Nigeria
investment efforts have not provided the desired results.
It is to anticipate that this research work should be a source of
reference to economic and social planners interested in the study of
investment in Nigeria.
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