Private Domestic Investment, Domestic Credit To The Private Sector And Economic Performance: Nigeria In Perspective.
Journal Title: IOSR Journal of Economics and Finance (IOSR-JEF) - Year 2018, Vol 9, Issue 3
Abstract
This study examines the dynamic linkages between domestic investment, domestic credit to the private sector and gross domestic product (GDP) in Nigeria over the period of 1970 to 2015. The main objective of the study is to provide an empirical framework for understanding the interactions between private domestic investment, domestic credit to the private sector and their impacts on the real sector. The Vector Autoregressive (VAR) model and its accessories of impulse response functions (IRFs) and variance decomposition composition (VDC) were applied toanalysetheannualdata. Having confirmed the long run relationship among the specified variables with Johansen co-integration test, the underlying theoretical expectations were used to identify the parameters and shocks of the structural model. On the basis of batteries of tests carried out, empirical findings indicate that the relationship between growth and domestic credit to the private sector is positive and insignificant. Also, our results show that increase in PLR reduces output for the period under study, but this was not statistically significant. In addition, the relationship between PDI and PDI is positive but statistically insignificant. Finally, the negative relationship between exchange rate and private domestic investment suggests that the appreciation of the real exchange rate discourages domestic private investment. On the basis of the above findings, the following recommendations are made. The macroeconomic management policies should be enhanced and better coordinated. Specifically the foreign exchange market should be stabilized. The wide disparity between the official and parallel market is damaging the economy and sending wrong signals to both private and local investors. The government should not leave the foreign exchange market to the vagaries demand and supply. The government should periodically intervene in the market when things are getting out of hand as it is present. Monetary and fiscal policies should be better coordinated to ensure that macroeconomic fundamentals are moving in the right direction.
Authors and Affiliations
Adelegan Abiodun Edward
Keywords
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- EP ID EP414645
- DOI 10.9790/5933-0903012231.
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