PRIVATE SECTOR INVESTMENT AND ECONOMIC GROWTH IN NIGERIA: A CASUAL RELATIONSHIP INVESTIGATION (1980-2014)

Abstract

This study examines the relationship between private sector investment and economic growth in Nigeria, based on OLS and Granger Causality test. The preliminary analysis of OLS findings established that some of the selected indicators of privately investment – foreign  direct investment and Gross capital formation -  in the long-run, were positively related with GDP but only foreign direct investment is significant. Inflation rate, credit to private sector and national savings were inversely related with GDP. These findings imply that credit to private sector and Gross capital formation do not adequately complement economic growth while inflation constitutes constraint to income drivable from private investment and ultimately, economic growth. The Granger Causality test established that only foreign direct investment indicator have bilateral relationship with GDP while economic growth precedes capital formation and inflation rate indicators and there was no evidence of feedback, implying unidirectional relationship with GDP. This indicates that the rate of capital formation and inflation rate determine the rate of the country’s economic growth. Others are independent. The result is therefore inconclusive, implying that private sector investment indicators do not adequately determine economic growth. Overall, the import of these results implies that the level of private investment in Nigeria is low and so, adversely influences economic growth. The study therefore recommends that government should strive to achieve sustainable price stability, economic efficiency driven by infrastructural development and enhanced technological capabilities to boost private sector production capacity and ultimately real GDP.