Effect of Macroeconomic Environment on Domestic Investment in Nigeria

Oluseye Samuel Ajuwon; Joseph Oscar Akotey

Oluseye Samuel Ajuwon University of Lagos, Akoka, Lagos, Nigeria
Joseph Oscar Akotey University of Stellenbosch Business School, Cape Town, South Africa

Keywords: Macroeconomics, investment behaviour, debt stock, exchange rate

Abstract

This research aimed at establishing the effect of macroeconomic environment on domestic investment in the Nigerian economy. The research work used Error Correction Model (ECM) approach on an annual time series that covers the period between 1981 and 2015, to establish the effect of macroeconomic environment on the investment behaviour in Nigeria. The analyses found that inflation, political instability and external debt stock were significant and positively related to domestic investment in the Nigeria economy, while exchange rate was initially positive and then negative and significant in tandem to a priori expectation. The major policy thrust in this analysis was that the exchange rate should be stable as much as possible (i.e., managed floating exchange rate system should be adopted, as well as the unification of exchange rate market in the country). The Nigerian economy depends on imported capital goods and, therefore, needs to maintain a stable and unified exchange rate to encourage investment.

Author Biographies

Oluseye Samuel Ajuwon, University of Lagos, Akoka, Lagos, Nigeria

Department of Economics, University of Lagos, Akoka, Lagos, Nigeria

Joseph Oscar Akotey, University of Stellenbosch Business School, Cape Town, South Africa

Development Finance, University of Stellenbosch Business School, Cape Town, South Africa

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