ABSTRACT

This study examined the effect of bank credits on private domestic investment in Nigeria for the period 1980 – 2019. The objectives of the study are to; examine the impact of bank credits on private domestic investment in Nigeria. Determine whether there are structural breaks on bank credits and private domestic investment existing in Nigeria during the period of the study and ascertain the shock impact of fluctuation in bank credits on private domestic investment growth in Nigeria from 1980 – 2019. Secondary time series data were used to carry out the empirical analysis. The study employed Vector Error Correction Model (VECM), Chow test, impulse response analysis in VAR model, Augmented Dickey Fuller (ADF) and Philips-Perron (PP) tests, co-integration test and Granger Causality approach. With the above econometric and statistic techniques conducted, it was observed that bank credit to private sector do have significant impact on private domestic investment in Nigeria. There is significant structural breaks on bank credit and private domestic investment existing in Nigeria during the period of the study. Fluctuations in bank credits does not significantly affect shock to private domestic investment growth in Nigeria during the period of study 1980 – 2019. The results revealed a bi-directional and directional nature of causality relationship between the variables in the model. These empirical results do exhibit evidence of instability from the results estimated which implies the presence of structural breaks that occurred during this period of 1990 – 2000. One per cent increase in credit to private sector (CPS), interest rate (INTR) and public investment (PUI) in the long run will lead to (7%, 4% and 16%) increase in private domestic investment (PDI) respectively in Nigeria during the periods of the study. Meanwhile, one per cent increase in inflation rate (IFR) and exchange rate (EXCR) in the long run will lead to (9% and 5%) decrease on private domestic investment (PDI) respectively in Nigeria during the periods of the study. Based on these findings, the study recommended: direct manipulation of interest rates other than money supply should be a better monetary policy tool to impact on the real sectors private domestic investment (PDI) of the economy. More emphasis should be placed on the use of interest rate, inflation rate and exchange rate since it can significantly influence investment in Nigeria. The country should learn how to develop credit policy with an average and attractive interest rate that will encourage investors to borrow money and as well give access to lenders (banks) to get their borrowed money back as at when due. The Nigerian government should create an enabling environment by ensuring security for the growth of the economy because no economy can grow her investment in the presence of insecurity. This gives room for instability and frustration in investment and economic growth.