LONG-RUN IMPACT OF INTEREST RATE, EXCHANGE RATE AND INFLATION ON PRIVATE SECTOR INVESTMENT IN NIGERIA

Abstract

This study examines the long-run impact of interest rate, exchange rate and inflation on private sector investment to in Nigeria over a period of 1980 – 2018. To achieve the objectives, annual time series data on real interest rate (RINT), exchange rate (EXCR), inflation rate (INFL) and private sector investment (PSIV) were collected from the publications of the Central Bank of Nigeria (CBN) and was analysed using the Johansen co-integration model. The co-integration result reveals the existence of one co-integrating equation in the system, with exchange rate having positive impact on private sector investment and inflation rate and interest rate have negative impacts on private sector investment in Nigeria. Therefore, the study concludes that there is a long-run run relationship among the variables of the study. Based on the findings, it is recommended, among other thing, that the focus of economic growth policy in Nigeria should be to reduce the cost of borrowing to private sectors (interest rate). This will increase production in the private sector and inflation will fall and exchange rate will appreciate in favour of naira.

Keywords:Private Investment, Interest Rate, Inflation rate, Exchange Rate