Economic Variables Crisis and Domestic Investment in Nigeria

This study investigated the effect of economic variables crisis proxied by exchange rate fluctuations (EXRF), inflation rate (INFR), interest rate (INTR), and political risk index (PRI) on domestic investment, proxied by gross fixed capital formation (GFCF), in Nigeria over the period 1981–2024. The study adopted a quantitative ex-post facto research design using annual timeseries data obtained from the Central Bank of Nigeria (CBN), National Bureau of Statistics (NBS), and BudgIT Nigeria. Data were cleaned, transformed where necessary, and analyzed using the Autoregressive Distributed Lag (ARDL) bounds testing approach, which allows for the inclusion of variables integrated at I(0) and I(1). Diagnostic tests, including descriptive statistics, correlation analysis, variance inflation factors, serial correlation LM test, heteroskedasticity test, Ramsey RESET test, and unit root tests, were conducted to ensure robustness. The ARDL results revealed that none of the four macroeconomic crisis variables had a statistically significant impact on GFCF in either the short run or the long run. Specifically, EXRF showed negligible and insignificant coefficients, suggesting that exchange rate volatility did not materially influence investment. INFR also exhibited no significant effect, indicating that inflationary pressures were not a primary determinant of GFCF during the study period. INTR was likewise insignificant, implying that lending rate fluctuations did not strongly shape investment outcomes. PRI also had no measurable effect on domestic investment, suggesting that political risk, as defined and measured in this study, was not a dominant driver of capital formation in Nigeria across the review period. These findings diverge from much of the empirical literature and the UncertaintyInvestment Theory, which posit that macroeconomic instability and political uncertainty negatively influence irreversible investment. The results imply that Nigeria’s investment behaviour during the study period may have been shaped more by persistent structural and institutional constraints than by the direct fluctuations of these macroeconomic indicators. The study recommends maintaining exchange rate stability, controlling inflation through structural reforms, adopting interest rate policies that encourage productive credit, and strengthening governance frameworks to improve the long-term investment climate.