Domestic Macroeconomic Policies and Private Fixed Capital Formation in Nigeria: A Var Approach

The study has as its objectives, to determine the impact of macroeconomic policies on private capital formation in Nigeria. In addition, the study sought to evaluate ipso facto the pattern of responses of private investment to shocks on macroeconomic Policies. And finally, to determine the causal ordering of the mediating variables connecting private investment and macroeconomic variables. The study applied the co- integrated vector autoregressive framework. The first objective of the model was resolve by estimating the short run dynamic error correction model. For the second objective, VAR lnodel was estimated to dtermine the impulse response functions and variance decomposition using Cholesky decomposition so as LO determine the response of private investment to shocks on macroeconomic policies. The third objective was resolved by conducting a granger causality test. Empirical lnvestigation reveal that macroeconomic policies like, interest rate policy, exchange rate policy, the size of the public sector, domestic credit policy and the real GDI' growth plays a prominent role in the performance of private investment in Nigeria. The results of both the dynamic short run model, impulse response and pair wise Grangcr causality test revealed the domestic credit to the private sector exerts a more significant influencing on the performance of the private investment. The study recommends that the expansion of the banking sector loanable fund to the private sector should be at the heart of the monetary policy design in Nigeria. In addition, the terms on which banking sector advances are extended to private investors should be reviewed and efforts should be intensified to wipe off all unofficial parallel markets or the so-called black market since they facilitate not only faster depreciation of the Naira through round tripping there by facilitating facilitate huge capital flight and illegal transfer of funds.

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