Interest Rates and Gross Fixed Capital Formation in Nigeria: A Multi-Dimensional Analysis

Sampson Ikenna Ogoke; Gabriel Queen Ibim; Akujuobi Ngozi Edith

doi:10.56201/ijbfr.vol.11.no8.2025.pg148.164

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Interest Rates and Gross Fixed Capital Formation in Nigeria: A Multi-Dimensional Analysis

Sampson Ikenna Ogoke, Gabriel Queen Ibim, Akujuobi Ngozi Edith

Abstract

The purpose of this study was to examine the effect of interest rates on gross fixed capital formation in Nigeria. The study adopted time series data from Central Bank of Nigeria Statistical Bulletin from 1990-2023. The study made use of the Augmented Dicker-Fuller (ADF) unit root tests and it was discovered that the variables were not in the same order at level, hence, the use of Autoregressive Distribution Lag (ARDL). Gross fixed capital formation was modeled as the function of savings rate, money market, rate, monetary policy rate; prime lending rate and maximum lending rate. The estimated ARDL model found that interest rates explained 66.3 per cent variation in gross fixed capital formation in Nigeria. At lag 1, the study found that prime lending rate has positive but no significant effect and added 0.54 per cent to gross fixed capital formation, maximum lending rate have negative and no significant effect on gross fixed capital formation and reduced it by 0.11 per cent. Money market rates have negative and no significant effect on gross fixed capital formation, the variable reduced capital formation by 0.04 per cent within the time periods. The study concludes that interest rates determine the changes in gross fixed capital formation in Nigeria. It recommends that there should be effective and implementable monetary policies to back the interest rate interest rate and there should be policies to deepen the operational efficiency of the financial market enhance Nigeria gross fixed capital formation. Interest rate should be deepened and the policies revisited to meet the financial development needs of the economy. Nigerian Interest rate structure such as lending, and prime lending rate should be harmonized with the objective of enhancing to enhance Nigeria gross fixed capital formation. Nigeria monetary authorities should increase savings rates to enable deposit institutions to mobilize fund for investment as this has great

Keywords

Interest RatesGross Fixed Capital FormationMulti-Dimensional Analysis

References

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Interest Rates and Gross Fixed Capital Formation in Nigeria: A Multi-Dimensional Analysis

Abstract

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