Impact of interest rates on investment in Nigeria using an annual time series dataset from 1986-2022

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ID: 309499
2025
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Abstract
This study analyzed the impact of interest rates on investment in Nigeria using an annual time series dataset from 1986-2022. The Autoregressive Distributed Lag (ARDL) model was employed for data analysis. Key variables included investment, interest rates, inflation rates, exchange rates, GDP growth rates, and money supply in Nigeria. The ARDL results indicated that, in the short run, interest rates have a negative and significant effect on investment. Conversely, inflation rates, exchange rates, GDP growth rates, and money supply positively and significantly influence investment. In the long run, interest rates continue to exert a negative and significant impact on investment, while inflation rates, exchange rates, GDP growth rates, and broad money supply maintain a positive and significant effect throughout the study period. Furthermore, the Toda and Yamamoto causality test revealed unidirectional causality between interest rates and investment, as well as between inflation rates and investment, and exchange rates and investment during the study period. To encourage investment in the Nigerian economy, it is recommended that monetary authorities implement policies to mitigate the upward trend in interest rates. Additionally, the central bank should adopt a tight monetary policy aimed at reducing lending rates to single digits.
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Authors Isah Baba Yahaya
Journal Aminu Kano Academic Scholars Association Multidisciplinary Journal
Year 2025
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