Does Private Sector Credit Impact on Private Sector Investment in Nigeria?

International Journal of Research and Scientific Innovation (IJRSI) | Volume VI, Issue XII, December 2019 | ISSN 2321–2705

Does Private Sector Credit Impact on Private Sector Investment in Nigeria?

George Chisom OKORIE¹, Nneka F. CHIKWENDU²

¹Department of Economics, Godfrey Okoye University Enugu, Nigeria
²Doctoral Student, University of Nigeria, Nsukka, Nigeria

Abstract: – Theories have proved that a significant critical factor influencing private sector investment is credit to the private sector which has more significant effect on economic activities than credit to the public sector. This study therefore examines the extent to which private sector credit impacts on private sector investment in Nigeria. The ARDL model was engaged in data analysis. From the analysis, the following results were established, that private sector credit has positive and significant impact on private sector investment in the short run, but in the long run, private sector credit has positive and insignificant impact on private sector investment in Nigeria. Empirically, 1 percent increase in private sector credit in the short run leads to 0.77 percent increase in private sector investment. The study recommends that, monetary authorities pursue policies aimed at increasing availability of private sector credit. Such policies include reducing real interest rate by 1 percent so as to increase private sector investment by 0.01% in the short run. Furthermore, the study recommends that public expenditure should be channeled to addressing the poor state of physical infrastructure, particularly road networks, electricity and water supply.

Key Words: Private Sector Credit, Private Sector Investment, ARDL Model.

I. INTRODUCTION

Achieving rapid and sustained economic growth has always remained the top most macroeconomic objective in the list of economic goals pursued by every developing nation. Incidentally, one major variable influencing economic growth is investment. At the domestic level, investment is categorized into public and private sector investments. Private sector investment refers to investment by individual people or firms as opposed to the government as an entity which is referred to as public sector investment. Economic theories have shown that some critical factors influencing private sector investment are those of credit to the private sector, the cost of capital, the rate of return, public sector investment, exchange rate etc.

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