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The Impact Of Interest Rate On Investment Decision In Nigeria. An Econometric Analysis (1981-2010)
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In order to curb the adverse effect
of the 1980s financial repression, Nigeria government deregulated
interest rate in 1987 as part of the Structural Adjustment Programme
(SAP) policy package. The official position was that interest rate
liberalization among other things, enhance the provision of sufficient
funds for investors, especially manufacturers (a priority sector) who
were considered to be prime agents, and by implication promoters, of
economic growth. However, in a policy reversal, the government in
January 1994 out-rightly introduced some measure of regulation into
interest rate management. It was claimed that there were “wide
variations and unnecessary high rate†under the complete deregulation of
interest rates.
Immediately, deposit rates were once again set at
12% to 15% per annum while a ceiling of 21% per annum was fixed for
lending a rate. The cap on interest rate introduced in 1994 was retained
in 1993 with a minor modification to allow for flexibility. The cap
stayed in place until it was lifted in 1997, thus enabling the pursuit
of the flexible interest rate regime in which bank deposit and lending
rate were largely detrrmined by the forces of demand and supply for
funds (Omole and Falokun 1999).
Declining investment ratio and level are problems; first of all, because investment matters for growth.
Secondly,
because low investment increases vulnerably in the economy (Niambon and
Oshikoya, 2001; 16). The main challenge that Nigeria is facing is
to make policies that will help revive and raise investment in the country in order to stimulate and sustain economic growth.
In view of the perceived challenge, this research work intends to provide answers to the under listed questions:
1. What is the impact of interest rate volatility on investment decisions in Nigeria?
2. What other variable determine investment decision in Nigeria.
3.
What has been the trend profile of investment in liberalization. He
used co-integration and Error Correction Model (ECM) procedure to
established both short-term and term effect simultaneously. He found
that public investment.
1.3 Objective of the Study
The research question above have given us an incite of the objectives the research work attempts to achieve. They are:
1. To determine the impact of interest rate volatility on investment decision in Nigeria.
2. To empirically investigate, ascertain and unravel other determinants of investment decision in Nigeria.
3. To investigate the trend profile of investment in Nigeria.
1.4 Statement of Hypotheses
Based on the above stated research objectives, conclusions would be drawn from the following research hypotheses:
1. Interest rate has no significant impact on investment.
2. Investment has no other determinants.
3. Investment has no trend profile in Nigeria.
1.5 Significance of the Study
This
work is mainly for academic purpose. However, it will be of great
importance to my researcher who would want to embark on any research on
interest rate and investment decision.
Also this piece of research
work would go a very long way in assisting any person or growth of
persons who would wish to know the place of interest rate and investment
decision in Nigeria.
Though for academic purpose, this work would be of great important of anybody who would want to embark on investment.
1.6 Scope of Limitation of the Study
The
study focuses on the impact of interest rate on investment decision in
Nigeria starting from 1981-2010 using annual time series data. Upon the
assertion that every pros have some cons, this study cannot be
exception. Some hitches and setback were encountered in the process.
First among the list is data
unavailability. For this reason, investment variable would be provided by Gross Fixed Capital Formation (AFCF).
Secondly, time and financial construct cannot be left out in the list setback and hitches.
The
cost of sourcing materials from the internet is exorbitant because of
epileptic and erratic power supply of the Power Holding Company of
Nigeria (PHCN). Thus, the cyber café power their systems with power
generating sets which increases their cost of production which they
eventually pass to us (the consumers of their services).
Despite all these hitches and setbacks mentioned above, this research work would have been a perfect work.
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ABSRACT - [ Total Page(s): 1 ]The focus of this research work is based on the impact of interest rate on investment decision in Nigeria. An econometric analysis between the periods of 1981-2010. Secondary data obtained from the central bank of Nigeria (CBN) statistical bulletin (volume 21) DEC 2010. Date was collected and empirical analysis made. To achieve these objective multiple regression was used in analyzing the data that the impact of interest rate on Nigeria prior to interest rate regulation in 1.986 and serve as gui ... Continue reading---
