Money Supply on Gross Fixed Capital Formation in Nigeria: A Multi-Dimensional Analysis

Abstract

This study examined the effect of money supply on gross fixed capital formation in Nigeria. Time series data were sourced from Central Bank of Nigeria Statistical Bulletin from 1990-2023. Gross fixed capital formation was modeled as the function of narrow money supply, broad money supply (2), broad money supply (M3) and quasi money, the study to applied Autoregressive Distributed Lag to estimate the parameters of the models. The estimated ARDL model found that money supply explained 88 per cent variation in gross fixed capital formation in Nigeria; this implies that 12 per cent was explained by variables not capture in the model. The model is statistically significant with the value of f-statistics and probability. The Durbin Watson statistic proved the absence of serial autocorrelation. The results found that quasi money is negatively related to real gross domestic, M3 is negatively related to gross domestic product at lag 2 and 3 while positively related at lags one, M2 is positively related while M1 is negatively related to gross fixed capital formation. The study concludes that money supply determines gross fixed capital formation in Nigeria. It recommends that Government should encourage capital investments in productive sectors of the economy such as agriculture, education transport, power, health and CBN should be made more effective in its monetary management by making all financial markets organized so as to accentuate the effects of monetary policy variables like Broad money supply.

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