THE EFFECTS OF FINANCIAL LIBERALIZATION ON SAVINGS AND INVESTMENT IN NIGERIA

Abstract

The Nigerian economy has been shifting toward greater financial deregulation, savings, and investment in recent years. The ramifications of these changes for Nigeria's economic growth are examined in this research. Using annual data from 1981 to 2023, a straightforward model is defined and evaluated that links economic output growth to investment, savings, and a number of control factors. The Two-Stage-Least Square (2SLS) instrumental variable technique was used to analyze the macro data from Nigeria. Key findings showed that rising interest rates have a detrimental impact on investment growth and that interest rates as a driver of savings are statistically significant. Second, investment adheres to the conventional accelerator hypothesis. Additionally, growth in the money supply is statistically significant and favorably correlated with investment. It's possible that market investments are more speculative in nature, pushing out real sector investments and slowing economic growth. According to the results finding, government action is required for the nation's economy to grow quickly and sustainably, particularly through measures like expanding access to financial services to mobilize funds and direct them toward investments. In order to accelerate economic growth, policies that allocate funding to profitable investment projects should also be put into place. It is highly recommended to the policy maker that Nigeria is credit-constrained nation rather than savings-constrained, since interest rates have little bearing on savings in Nigeria.