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THE IMPACT OF DOMESTIC INVESTMENT ON THE ECONOMIC GROWTH OF NIGERIA.

 

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

Since the attainment of independence in 1960 various policies of the Nigerian government have been geared towards promoting the growth and development of the Nigeria economy by influencing the trends of Gross Domestic Investment or indirectly through policies aimed at stimulating the flow of finance in any growing economy. Several literatures have shown that there is a nexus between increase in Real Gross Domestic Investment and economic growth of the Nigerian economy. Real Domestic investment in the economy is an acceptably way of increasing capital formation in the economy thus increasing productivity, output and economic growth in Nigeria. Real Domestic Investment is expenditure made to increase the total capital stock in the economy. This is done by acquiring further capital-producing assets and assets that can generate income within the domestic economy. Physical assets particularly add to the total capital stock. Boosting economic development in Nigeria requires higher rates of economic growth than savings can provide. Part of the finance for investment in Nigeria is provided by the corporate sector, bank loans and household savings make up the other part.

 

Investment in finance is the acquisition of financial assets for earning returns (Stiglitz, 1993). Investment can be divided into autonomous and induced investment. Autonomous investment is service based and not induced by demand as its is not influenced by immediate returns while induced investment is largely profit motivated. Autonomous investment is in the purview of the public sector and therefore propelled by the government. Most autonomous investment end up increasing capital formation in the Nigerian economy thus, fostering economic growth. Real Domestic Investment can be undertaken by the public or private sectors, with the government being involved mainly with autonomous investments which act as the main drivers of other investment in the economy.

 

Autonomous investment in Nigeria has dwindled drastically because the expenditure made by the public sector are not delivering value where rightly conceived. A simple analysis of the Gross Domestic Investment statistics from the Central Bank of Nigeria (CBN) shows that the nominal investment in Nigeria is going down and his fallen in real terms over the years. Investment could be social in outlook others are infrastructural (transport, power, water, housing etc) while others are purely economic, which the private sector undertakes for private capital accumulation while financial investment is an avenue to increase wealth, real investment in Nigeria is directed towards increasing productivity and economic growth of the Nigerian economy. Thus, this research work seeks to unfold the nexus between domestic investment and economic growth of the Nigerian economy since gross domestic investment is a sine qua non to the economic growth of the Nigerian economy. The relationship between physical investment and GDP is considered the most important of the factors antecedent to growth. Ige (2008) opines the important role of the government in providing autonomous investment which is more government propelled and the role of government a financial management.

 

1.2   STATEMENT OF THE PROBLEM

One of the major economic problem of the Nigerian economy and developing economics at large is low Gross Domestic investment finance which leads to a decline in economic growth and development. The vicious cycle of low domestic investment finance as a result of low savings which leads to low capital formation has become a cankerworm which has eaten deep into the fabrics of the Nigerian economy and development of the Nigerian economy which has reduced the pace of economic growth of the Nigeria economy in particular and developing economies in general.

 

The Nigerian government as an economic has not been helpful to domestic investment in the country and with the direction of its investment over the years. Where the government has made investment, it is in projects that do not ginger other investment or on project that do not have economic linkages that can foster economic growth though it might have borrowed funds from the financial system to commit to such investment. It is therefore important to reposition the countries financial stance by given consideration to effective mobilization of domestic private investment as a development strategy for driving sustainable long term economic growth.  In most developing economies in general and Nigeria in particular, domestic private investment has proven to be insufficient in giving the economy the required boost to enable it achieve it growth target because of the disparity between the capital requirement and their savings capacity and rather than the government taking concrete steps to implement policies and formulate a culture of continuous domestic investment the government is gradually shying away from its responsibility.

 

The summary of the research problem are stated below:

The vicious cycle of low domestic investment finance as a result of low savings resulting into low capital formation has militated against Nigeria’s economic growth. Nigeria’s government has not been channeling their investment to economic viable projects and sectors of the economy thus curtailing the pace of Nigeria’s economic growth. In developing economies in general and Nigeria in particular, domestic investment has proven to be insufficient and extremely low to ginger or accelerate Nigeria’s economic growth. Lack of effective mobilization of domestic investment in Nigeria to various sectors of the economy, thus militating against sustainable long-term Nigeria’s economic growth. Disparity between capital requirement for investment and savings capacity in Nigeria, thus hampering Nigeria’s economic growth. Poor government policies that do not foster domestic investment in Nigeria.  

1.3   RESEARCH QUESTIONS

The following research question shall guide this study:

Is there any nexus between domestic investment and economic growth in Nigeria? What are the factors affecting domestic investment in Nigeria. What factor effect domestic investment in Nigeria What theoretical and empirical exist for the explanation of investment – economic growth linkage. What suggestions exists for policy recommendation for the improvement of domestic investment for economic growth.  

1.4   OBJECTIVE OF THE STUDY      

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:

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

1.5   RESEARCH HYPOTHESES

H0: Increase in domestic investment in the various sectors of the economy namely; the agricultural sector, petroleum and power sector, have not impacted on Nigeria’s economic growth. H0: Low domestic investment in Nigeria has not affected Nigeria’s economic growth. H0: Domestic investment does not have any significant impact on Nigeria’s economic growth.  

1.6   SIGNIFICANCE OF THE STUDY

This research is carried out with the aim of enlightening scholars and every other person that is opportuned to lay hands on it, on the impact of domestic investment on Nigeria’s economic growth. It is also believed that this may proffer useful suggestions to policy makers and economic planners towards making effective economic decision for effective economic growth and development. Thus, domestic investment is seen as a sine qua non to fostering economic growth in Nigeria.

 

1.7   SCOPE OF THE STUDY

The scope of this study revolves around the impact of domestic investment on the economic growth of Nigeria between the year 2008 and 2011.

 

1.8   DEFINITION OF KEY TERMS

Investment: Investment on finance is the acquisition of financial assets for earning returns. Domestic Investment: This refers to the investment made by residents of a country both private investment made by citizens and public investment made by government. Gross Private Domestic Investment: This is the measure of physical investment used in computing Gross Domestic product (GDP) in the measurement of a nations economic ability.

Economic Growth: This is a sustained increase in the output of a country over a period of time. It also refers to the sustained increase in the Gross Domestic Product (GDP) of a country 

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