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Success Abusomwan () and Jessy Ezebuihe ()
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Success Abusomwan: Department of Economics and Statistics, Faculty of Social Sciences, University of Benin, Benin City, Edo State, Nigeria
Jessy Ezebuihe: Department of Economics, University of Nigeria, Nsukka, Enugu State, Nigeria

Oradea Journal of Business and Economics, 2017, vol. 2, issue 2, 45-55

Abstract: The objective of this study is to empirically investigate the long run and short run dynamic impact of interest rate and output on gross domestic savings and gross capital formation in Nigeria. Literatures, both theoretical and empirical, suggest that the rate of interest and output are the key factors influencing savings and investments. A review of factors influencing interest rates and output in Nigeria is necessitated by the recent economic downturns in Nigeria that has resulted in tight monetary policy which some commentators regard as inimical to growth. Employing Ordinary Least Squares, Co-integration, Error Correction Mechanism and Granger Causality econometric techniques on a data spanning 1981 to 2014 of the Nigerian economy sourced from the World Development Index, it was found that changes in output explains the long run and short run dynamic behaviour of gross domestic savings and gross capital formation which were used as proxies for savings and investment respectively. Whereas, a bi-causality was established between output and investment, causality flowed from output to savings in Nigeria. The research also found that interest rate is not a significant determinant of savings and investment in Nigeria in both long run and short run. It is therefore recommended that to enhance investment in a period of economic downturn in Nigeria, aggregate demand should be boosted to enhance output through vigorous pursuit of fiscal policy while implementing contractionary monetary policy to address inflationary pressures created by the increase in demand. Domestic savings will improve and gross capital formation will be sustained.

Keywords: Gross Capital Formation; Gross Domestic Savings; Error Correction Model (search for similar items in EconPapers)
JEL-codes: A1 C22 E10 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:ora:jrojbe:v:2:y:2017:i:2:p:45-55