Macroeconomic Determinants of Domestic Investment in Nigeria: Comparing Theory and Empirics

Abstract

This article examined the macroeconomic determinants of domestic investments in Nigeria in the light of mainstream investment theories using annual data from 1982 to 2020. We adopt an Autoregressive Distributed Lag (ARDL) model to examine the long run and short run relationships between the dependent and the explanatory variables. From the reviewed economic theories, we identified interest rate, output, savings, government expenditure, money supply, stock market performance and inflation as macroeconomic determinants of investment which we used as explanatory variables in our model. The findings of this study shows that government expenditure, money supply and inflation were significant determinants of investment in the short run while all the variables except interest rate were significant determinants of investment only in the long run. Interest rate was not significant as a determinant of investment within the period of study. The findings of this study add credence to most of the various economic theories reviewed. It shows that investment in Nigeria can be significantly driven by policies because the identified macroeconomic determinants of investment in Nigeria are variables that the policy authorities can influence through policy decisions. We recommend among other things, improvement in financial intermediation and the involvement of domestic firms in the execution of government projects.