Interest Rate and Economic Growth as Determinants of Firm’s Investment Decision in Nigeria: A Cointegration Approach
Keywords:
Interest Rate; Economic Growth; Investment DecisionAbstract
The study examined the impact of interest rate and economic growth as determinant of the firm’s investment decision in Nigeria between the period of 1989 and 2019. The study disaggregated interest rate and economic growth into external borrowing, exchange rate, inflation rate, and gross domestic product in line with the predicated theories reviewed. The data were obtained from the Central Bank of Nigeria Statistical Bulletin. Based on the mixed level of stationarity of the variables as revealed by the unit root test, the study made use of the auto-regressive distributed lag (ARDL) technique to analyze the data. The bound test revealed that; there was the presence of co-integration (long-run relationship) among the dependent and all the explanatory variables consequently the study estimated the ARDLECM. The findings from the result point to a unique long-term relationship between interest rates, external borrowing, exchange rate, and economic growth. The result also revealed that there is no strong empirical evidence that there is a link between the interest rate and investment decisions in Nigeria. It was concluded that as a prerequisite for economic growth, the government must embark on growth-enhancing reforms and be tender to the behavior of interest rates in the economy. This will guide the formulation of private sector development policy as an enabler of global economic growth in Nigeria.
References
Agu, C.C., (1988). Nigerian Banking Structure and Performance: The Banking System Contribution to Economic Development studies. Onitsha African FEP Publishers
Ayder, O., Demirhan, E., (2009). “The relationship between stock prices and exchange rates: Evidence from Turkey,” International Research Journal of Finance and Economics, Issue 23, pp.207-15.
Doong, S.-Ch., Yang, Sh.-Y., Wang, A.,( 2005). “The dynamic relationship and pricing of stocks and exchange rates: Empirical evidence from Asian emerging markets,” Journal of American Academy of Business, Cambridge, Vol.7, No1, pp.118-23.
Eregha, P.B. (2010). Interest Rate Variation and Investment Determination In Nigeria, International Business Management, 4 (2), Pp. 41-46
Fry, M., (1989). Foreign Debt Instability: An Analysis of National Savings and Domestic Investment Response to Foreign Debt Accumulation in 28 Developing Countries. J. Int. Money Finance.
Horobet A., Dumitrescu S. and Dumitrescu D. (2009). Uncovered Interest Parity and Financial Market Volatility, The Romanian Economic Journal (2) (32) 21- 45.
Hsing, Yu.,(2004). “Impacts of fiscal policy, monetary policy, and exchange rate policy on real GDP in Brazil: A VAR model,” Brazilian Electronic Journal of Economics, Vol.6, No1.
Iqbal, Z., (2001). “Economic challenges in the Middle East and North Africa: An overview,” Issues and Policies in the Middle East and North Africa, IMF
Jorgenson, D. (1963). Investment Vol. 1: Capital theory and investment behavior, MIT Press, 55 Hayward Street, Cambridge, MA 02142 – 1315 USA.
Kurihara, Y.,(2006). “The relationship between exchange rate and stock prices during the quantitative easing policy in Japan,” International Journal of Business, Vol.11, No4, pp.375-86.
Lensink Robert, (2000). Does Financial Development Mitigate Negative Effects of Policy Uncertainty on Economic Growth? Credit Research Paper 00/1
Mahmudul, A., Gazi Salah, U., (2009). “The relationship between interest rate and stock price: Empirical evidence from developed and developing countries,” International journal of business and management, Vol.4, No3, pp.43-51.
Mckinnon, R. and Shaw, (1973). Money and Capital in International Development. The Brokenness Institution, Washington D.C.
Mckinnon, R.I., (1973). Money and Capital in Economic Development. 1st Edn., Brookings Institution, Washington D.C., USA.
Olivier Blanchard, (2006). Macroeconomics, Fourth Edition, Pearson International Edition, Pearson Prentice Hall, Upper Saddle River, Pp. 421-436.
Ologunde, A., Elumilade, D., Saolu, T., (2006). “Stock market capitalization and interest rate in Nigeria: A time series analysis,” International Research Journal of Finance and Economics, Issue 4, pp.154-67.
Shaw, E. (1973). Financial Deepening in Economic Development. Oxford University Press, London.
Uchendu, O.A. (1993). "Interest Rate Policy, Savings and Investment in Nigeria",Central Bank of Nigeria Economic and Financial Review, 31(3) : 34-52.
Williams, E., (2009). The Return of Interest Rate Caps. Business World Publication, May
World Bank, (1993). World Bank Policy. Res. Bull., 4(3), May-July.
WIR, (2003). World Investment Report 2001: Promoting Linkages, New York and Geneva.
WIR, (2009). World Investment Report 2002: Transnational Corporations and Export. and Economics Discussion Series: 96/03.
Published
How to Cite
Issue
Section
License
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
