Determinants of Savings, Private Investment and Economic Growth in Nigeria (1981-2015).

Abstract The Nigerian economy is at crossroads manifested through rising unemployment rates and low GDP growth rates as well as low investment cum savings rates. Hence the study sought to determine the effects of some macroeconomic variables on domestic savings, private investment and the economic growth of Nigeria during the period of 1981-2015. To achieve the stated objectives of the study, domestic savings, private investment and economic growth models were formulated on the basis of functional linear relationships with the identified predictor variables. The fitted multiple linear regression models adopted the ordinary least squares (OLS) techniques of data analysis, and the mix stationarity of the time series data sets of the growth, savings and investment models informed the decision to apply the autoregressive distributed lags (ARDL) methods of data analysis for these models. The study relied on secondary sources of time series data obtained mainly from Central Bank of Nigeria, National Bureau of Statistics and National Population Commission for the formulated multiple regression models. The outcome of the empirical investigations for the Growth Model evinced that there were direct positive relationships between economic growth and the regressors namely gross domestic savings, foreign direct investment, private domestic investment and human capital. But the results established an inverse relationship between economic growth and population growth rates. Also, the bound tests indicated the existence of a long-run relationship between growth and the predictor variables. Besides, the multiple regression results of the Private Investment Model revealed a strong evidence of statistically significant inverse relationship between private investment and interest rate as well as statistically significant positive relationship between inflation rate and private investment. However, capacity utilization and nominal exchange rate had statistically insignificant positive and negative relationships respectively with private investment. And the bound tests indicated the existence of a long-run relationship between investment and the explanatory variables. Furthermore, for the Savings Model, the results indicated that gross domestic savings had a significantly positive and negative relationship with deposit interest rate and inflation rate respectively. But there was a linear insignificant positive relationship between gross domestic savings and real GDP per capita and population growth rate. Also, the bound tests indicated the existence of a long-run relationship between savings and the independent variables. In essence the study provided a better and broad understanding of the determinants of savings, private investment and economic growth in Nigeria. The study also recommended among others that government should resuscitate the productive base of the economy through appropriate monetary, fiscal and exchange rate policies to improve the economy’s capacity to achieve the desired level of economic growth. Industrial capacity utilization should also be improved to bolster the contribution of the manufacturing sector to the GDP, and also incentives be provided to both domestic and foreign investors by government for the subsistence of firms and businesses and raise the investment/GDP ratio to the level recommended by the World Bank. Also government should encourage rural and semi-urban development of the banking xv sector for effective savings mobilization and financial intermediation so as to enhance investment opportunities and provide more credit facilities to the economy.

TABLE OF CONTENTS

DECLARATION......................................................................................................................ii

CONFIRMATION AND APPROVAL................................................................................ iii

DEDICATION.........................................................................................................................iv

ACKNOWLEDGEMENT.......................................................................................................v

LIST OF TABLES..................................................................................................................vi

LIST OF FIGURES ............................................................................................................. viii

TABLE OF CONTENTS .......................................................................................................ix

Abstract..............................................................................................................................xiv

CHAPTER ONE ......................................................................................................................1

INTRODUCTION....................................................................................................................1

1.0 Introduction....................................................................................................................1

1.1 Background to the study................................................................................................1

1.1.1 Historical perspective..................................................................................................1

1.1.2 Theoretical Perspective: .............................................................................................4

1.1.3 Conceptual Perspective: .............................................................................................6

1.1.4 Contextual Perspective:..............................................................................................9

1.2 Statement of Problem...................................................................................................11

1.3 Purpose of the Study ....................................................................................................12

1.5 Research Questions......................................................................................................12

1.6 Hypotheses....................................................................................................................13

1.7 Scope of the study.........................................................................................................13

1.7.1 Geographical Scope...................................................................................................14

1.7.2 Theoretical Scope ......................................................................................................14

1.7.3 Time Scope .................................................................................................................15

1.7.4 Content Scope ............................................................................................................15

1.8 Significance of the Study .............................................................................................15

1.9 Operational Definitions of Terms...............................................................................16

 CHAPTER TWO........………………………………………………………….…………18

LITERATURE REVIEW .....................................................................................................18

2.0 Introduction..................................................................................................................18

x

2.1 Review of Theoretical Framework .............................................................................18

2.2 Conceptual Framework ...............................................................................................22

2.3.1 Theoretical Review of Economic Growth Models..................................................25

2.3.2 Theoretical Review of Saving Models .....................................................................33

2.3.3 Theoretical Review of Investment Models..............................................................36

2.4 Review of Empirical Studies on the Causes of Economic Growth ..........................40

Introduction........................................................................................................................40

2.4.1 Review of Empirical Studies on Economic Growth in Nigeria .............................40

2.4.2 Review of Empirical Studies on Economic Growth in some African Countries.53

2.4.3 Review of Empirical Studies on Economic Growth at the Global Level .............60

2.4.4 Review of Empirical Studies on the Determinants of Savings..............................68

 2.4.5 Review of Empirical Studies on the Determinants of Investment………….……….72

2.5 Research Gap................................................................................................................77

CHAPTER THREE...............................................................................................................79

METHODOLOGY ................................................................................................................79

3.0 Introduction..................................................................................................................79

3.1 Design of the Study.......................................................................................................79

3.2 Model Specification......................................................................................................80

3.3 Nature and Sources of Data ........................................................................................85

3.4 Methods of Data Analysis............................................................................................86

3.4.1 Preliminary Analysis.................................................................................................87

3.4.2 Inferential Analysis...................................................................................................87

CHAPTER FOUR..................................................................................................................89

DATA PRESENTATION, INTERPRETATION and ANALYSIS OF RESULTS.........89

4.0 Introduction..................................................................................................................89

4.1 Hypotheses Test for the Growth Model ...................................................................101

4.2 Hypotheses Tests for the Investment Model............................................................117

 4.3 Hypotheses Tests for Savings Model………………………………………………132

CHAPTER FIVE .................................................................................................................136

DISCUSSIONS ON FINDINGS, CONCLUSIONS AND RECOMMENDATIONS ....136

5.0 Introduction................................................................................................................136

5.1 DISCUSSIONS ON RESEARCH FINDINGS ........................................................136

5.1.1 The Growth Model..................................................................................................136