Accounting Project Topics

The Impact of Domestic Investment on Nigeria’s Economic Growth

The Impact of Domestic Investment on Nigeria's Economic Growth

The Impact of Domestic Investment on Nigeria’s Economic Growth

Chapter One


The broad objective of the study is to investigate the impact of domestic investment on the economic growth of Nigeria.

The specific objectives of this study include:

  1. To ascertain the nexus between domestic investment and economic growth.
  2. To investigate the factors for low domestic investment in Nigeria
  3. To identify the factors affecting domestic investment in Nigeria.
  4. To offer theoretical and empirical insights into the link between domestic investment and economic growth.
  5. To offer policy recommendations based on the empirical findings of this study.




A lot of economies depend on investments to resolve several economic problems, crisis and challenges. Less developed countries in Africa such as Nigeria is introducing various economic policies that will attract as well as keep hold of private investors. This is due to the fact that investments in certain sectors of the economy can rapidly transform the numerous economic challenges we are facing as a nation. Therefore, the Nigerian government at any given opportunity works a lot to attract investments into various sectors of the economy. The motive for this is not farfetched. Investment both private and public comes with a lot of benefits such as job creation, increase in percapita income, reduction in the level of poverty, increase in standard of living, increase in GDP, etc.. A number of studies have illustrated that there exist a correlation between private investment and public investment. Everhart and Sumlinski (2011), Odedokun (1997), are amongst scholars who have investigated this statement with different results. In less developed countries, government plays a vital function in capital formation. Specifically, public investment makes up a significant part of total investment. Therefore, it is worthwhile to assess the influence of these expenditures on private investment decisions. The effect of public

investment on private investment is indefinite. That is to say, public investment can work as a substitute (negative impact on private investment) to or a complement (positive impact on private investment) for private investment. The level of the impact depends on the sector in which the government carries out the investment projects. Public investment may promote private investment when it assists in increasing the productivity of private-owned firms. Conversely, it may crowd out private investment when: The government invests in ineffective state owned companies; private investors anticipate higher taxes to pay for such expenditures; the public sector competes with the private sector for internal loanable funds (Apergis, 2000). The objectives of this study includes: to examine the impact of private and public investment on economic growth and to analyze the trends of private investment, public investment and economic growth in Nigeria from 1970 – 2013. In spite of various structural changes and reforms in Nigeria, the country remains entangled with a number of economic maladies, which so far has proven to be overwhelming. Among these difficulties are high unemployment and poverty levels. The planned withdrawal of the government from the investment scene, and leaving it to the private sector to play its function has not been too promising for the nation. Nigeria’s macroeconomic indicators show the pitiable performance of private investment in Nigeria for the period 1986 to date (CBN, 2010). For example, private investment declined from 12.3% of GDP in 1991 to 8.3% of GDP in 1992, this may be partly due to the reduced public investment, which fell during the same period. Private investment then increased to 12.5% in 1993 and to 16% in 1994. Later, it fell continuously to 8.9% in 1996. Between 2001 and 2005, the ratio averaged 13%; it peaked at 16.2% in 2002 but fell again to 12% in 2005 (CBN, 2010). Ever since, there have been insignificant increases in the ratio. The noticeable fall in the ratio of private sector investment to GDP in spite of the emphasis on private sector following the introduction of public sector reforms is even more perturbing.


Domestic investment is the acquisition of income-producing assets within the economy rather than abroad. Physical assets particularly add to the total capital stock. Boosting economic development requires higher rates of economic growth than domestic savings can provide. The role of domestic savings in the investment process is positive. Long-term relationship between savings and investment tend to be strong, (World Bank, 2007), though countries with the highest investment rates are not necessarily the ones with highest savings rates. While short-term investment is encouraged by external sources of fund, long term investment is driven more by domestic forces. With lower rates of interest, asset values tend to be on the upward swing, which reflects the discounted value of such assets. Such higher asset values increases the rate of acquisition and investment and thereby increasing aggregate demand. Total supply increases in response to greater aggregate demand, and this generates a further increase in demand – forming a virtuous cycle. Investment therefore, is not constrained by aggregate savings but more by domestic interest rates (Monetary Policy Rates) as set by the Central Bank, who invariably has other objectives apart from maintenance of low inflation and increasing the level of savings in the domestic economy (Moore, 2006). Therefore the new equation of investment is, Investment = (Savings) + (Newly Created Money Available to Deposit Money Banks). Generally, sub-Saharan Africa has lagged behind in saving rates among other regions of the world. While savings rates have doubled in south East Asian countries and increased in Latin American countries, it has stagnated in subSaharan Africa, according to Loayza, Schmidt-Hebbel and Serven (2000). Since savings, investment and economic growth are linked; unsatisfactory or poor performance of one affects the other, and could lead to stagnated growth, which in turn can affect the viability of the BOP (Chete, 1999). Attempts at reducing expenditure have affected investment rates and have led to poor and sluggish growth which has eventually affected savings performance (Khan and Villanueva, 1991). The provision of infrastructure in the economy with autonomous investment is more government propelled and powered and may not be generated from savings. Sub-optimal allocation of resources due to governance and political-economy issues in Nigeria is partly responsible for the low rate of domestic investment in Nigeria according to Collins and Bosworth (2003) as cited in UNCTAD (2007). Though no statistics is available to support this, the above-mentioned factor is most-likely, responsible for low Total Factor Productivity (TFP) growth. With Nigeria’s low level of savings and investment profile, Nwachkwu and Odigie (2009) recommend the increase in the production base of the economy in order to increase the two variables, increased savings and investment can be achieved by encouraging increase in funding for the diversification efforts away from oil. The use of National Economic Empowerment and Development Strategy (NEEDS) and Micro, Small and Medium Enterprises (MSMEs) to encourage savings and investments rates in the Nigerian economy is important. The real rate of interest is important because the nominal rate cannot encourage financial savings as depositors face purchasing power risk overtime.





The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to examine of the impact of domestic investment on Nigerian economic growth.


Data were collected from two main sources namely:

  • Primary source and
  • Secondary source

Primary source:

These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.

Secondary source:

These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.


Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on the study the impact of domestic investment on Nigerian economic growth. 200 staffs of different banks in Abuja was selected randomly by the researcher as the population of the study.




Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey.  This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.





It is pertinent to note that this research was aimed at examining the effect of foreign investment on the Nigeria economy, thus the topic “the impact of domestic investment on Nigerian economic growth”.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges associated with domestic investment and economic growth in Nigeria.


The following summaries were drawn from the study; Government have funded most of its public expenditure through borrowing from banks, such bank funds could have been lent to the private sector for investment purposes which would have had multiplier effects on economic growth. The implication is that government borrowing crowds out domestic private sector investment.

Financial savings that enable banks to have resources for investment is shallow and can hardly support any meaningful real investment in Nigeria. The implication of this is that foreign direct investment inflow can be discouraged since good investment environment is lacking in Nigeria.

The preponderance and sleekness of the financial system towards short-term investments which is little benefit (if any) and cannot encourage growth in Nigeria.

Investments are not being made in the real sector somehow, and those that have been made are in liquid assets.


From the results, it is clear that there is a significant long run positive relationship between domestic investment and economic growth in Nigeria. Similarly, from the results, it is concluded that, there is a significant positive long term relationship between exports and economic growth in Nigeria. For causality test, although significant long run positive relationship exists between exports and economic growth in Nigeria, such relationship does not exist in the short run. The results also suggest that domestic investment and economic growth influence each other in the short run, though the influence of domestic investment on growth is negative. Therefore, economic growth should be strengthened in order to achieve high level of domestic investment both in the short and long runs. Furthermore, although export does not have any significant influence on economic growth in the short run, such influence exists in the long run. The findings of this study therefore have the following implications: first, economic growth should be strengthened in order to achieve high level of domestic investment both in the short and long runs. Furthermore, although export does not have any significant influence on economic growth in the short run, such influence exists in the long run. Therefore, measures that will ensure exports promotion should be adopted.


  1. Banks should be encouraged to provide more long-term loans to the real sector if their impact on the economy is to be felt
  2. The government should urgently tackle the infrastructural challenges of the country concerning energy availability, power supply, and water supply 3. The government should set specific targets for the manufacturing sector in the implementation of future plans.
  3. The decadence in the education sector and the health sector should be paid immediate attention to improve the quality of human resource in the economy etc. However, these recommendations can be achieved through a holistic approach in tackling corruption which has been the rot in the Nigerian economy.


  • Adebiye, M. A. (2002). Debt service education nexus: The Nigerian experience. NES 2002 Annual Conference.
  • Agenor, R., & Montiel, P. (1996). Development Macroeconomics. Princeton University Press.
  • Alicia, H. M. (1990). Why has productivity growth declined? Productivity and public investment. New England Economic Review, Federal Reserve Bank of Boston, Issue January, 3-22.
  • Akpan, N. I. (2005). Government expenditure and economic growth in Nigeria, A disaggregated approach. Central Bank of Nigeria Economic and Financial Review, 43(1).
  • Akpokodje, J. G. (1998). Macroeconomic policies and private investment in Nigeria: Rekindling investment for economic development in Nigeria (pp.59-74). Proceedings of the Annual Conference of the Nigerian Economic Society.
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