How to Stimulate Domestic Investment in Nigeria? An Analysis of Macroeconomic Variables and Financial Development

The development of domestic investment in a country depends on a large group of economic, political, and institutional factors. This research aims to evaluate the impact of macroeconomic variables and the pace of financial development on domestic investment in Nigeria, to provide empirical evidence to inform effective policy interventions. The study employed an ex post facto research design because the variables are already established, easily accessible, and gathered without control or manipulation. Although the researcher cannot test the variables experimentally, the design enables him to ascertain the relationship between the independent and dependent variables. Secondary data were accessed through the World Bank Indicators for the corresponding years. Additionally, all the data are collected at the national level on an annual basis. For macroeconomic indicators, inflation rate (INFR), exchange rate (EXCH), interest rate (INT), and GDP growth rate (GDP) have been used as proxies for such significant investment determinants. For financial development (FID), gross capital formation has been used as a proxy indicator. The private domestic investment (DOI) measure for the same period was used as the investment variable. The data contains 35 observations between the years 1990 and 2024. For data analysis, this study utilised Econometric Views (E-Views) version 11. The analysis included several tests initially: the Augmented Dickey-Fuller unit root test and the cointegration test. The researcher also employed descriptive statistics, a correlation matrix, a multicollinearity test, and heteroskedasticity tests to verify the reliability and validity of the estimated parameters in the regression equation. The findings indicate that interest rates, exchange rates, inflation, GDP growth, and financial development did not have a significant impact on domestic investment over the long term. This outcome highlights the influence of structural barriers, weak financial systems, and ineffective institutions over traditional macroeconomic factors on investment behaviour. While macroeconomic stability is essential, it cannot drive substantial domestic investment independently without accompanying structural and institutional changes. In conclusion, the study recommends measures to stimulate domestic investment in Nigeria.