Domestic Debt and Domestic Private Investment: A re-investigation of the Crowding-out Hypothesis in Nigeria

Abstract

Owing to the huge increase in volume of domestic borrowing in Nigeria (especially within the last two decades) and the existence of conflicting findings on impact of domestic borrowing has on domestic private investment,this study re-examined the crowding-out hypothesis in Nigeria spanning the period 1981-2020. The estimates from co-integration and error correction mechanism show that domestic debt impact negatively on domestic private investment in Nigeria. This implies that crowding-out hypothesis holds for Nigeria. The model was affirmed structurally stable using CUSUM and this also implies that findings could be relied upon. In the light of the findings, it was recommended that a strategy/policy that help manage and cushion negative impact
domestic debt has on domestic private investment in Nigeria should be put in place and effectively implemented. Example includes; policy that enhances domestic savings, utilization of public funds for critical infrastructure and enabling environmentfor business to strive amongst others.