Government Borrowing and Private Investment in Nigeria

Marshall V. Isaac & Florence E. Essien

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Abstract

This study sought to examine the effects of government borrowing on private investment in Nigeria using secondary data from 1986 to 2023. An autoregressive distributed lag (ARDL) model was applied to investigate the short-run and long-run effects of government borrowing on private investment. The findings revealed that, in Nigeria, for the period under investigation, government borrowing had a significant negative effect on private investment in the short run and a positive/significant effect on private investment in the long run. Based on these results, the study recommends that the government should direct borrowed funds towards projects that have immediate positive spillovers for the private sector, such as grants or subsidies for small businesses, to mitigate the crowding-out effect. The government should also prioritise investment in infrastructure such as good transportation networks and reliable power supply that directly reduce the costs of doing business. These will stimulate private investment in the Nigerian economy.

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