Modeling Private Investment Behavior in Nigeria: A Cointegration Approach

Abstract

This study was aimed at investigating the behaviour of private investment in Nigeria. Using data covering the period between 1980 and 2011, the result of the parsimonious ECM indicates that the huge government expenditure on infrastructure has been beneficial to private investors in Nigeria. The result also indicates that private investment has been influenced by the international competitiveness of Nigeria as indicated by the significance of the Real Effective Exchange Rate. The high rate of inflation has however been detrimental to the development of private investment in Nigeria. The Johansen cointegration test supports the existence of a long run relationship among the variables and the negatively signed and significant ECM insinuates a satisfactory speed of adjustment. Government should thus intensify efforts to tackle the high rate of inflation and further increase the competitiveness of the economy.