Econometric Framework for Assessing the Impact of Private and Public Investment on Real GDP in Nigeria Using ARDL-ECM Technique
Abstract
Nigeria’s economic growth performance has remained volatile despite sustained increases in both private and public investment over the years. This paradox raises concerns about the effectiveness, efficiency, and dynamic impact of different forms of investment on real gross domestic product (GDP). In the present study, real GDP was used as the dependent variable, while private investment, public investment, real interest rate, political stability, labour force participation, balance of trade, and inflation served as explanatory variables. The ARDL bounds test was applied to determine long-run relationships, and an Error Correction Model estimated short-run dynamics where cointegration existed. Stationarity was tested using the Augmented Dickey–Fuller test, while diagnostic tests ensured model reliability. Annual data from 1994–2023 were sourced from official databases and analyzed using EViews 10. The results indicated wide variation among Nigeria’s macroeconomic variables between 1994 and 2023. Inflation averaged 16.64% (max 72.84%), real interest rate averaged 3.54% (min –31.45%), and private investment averaged ₦9,001.31 billion, showing relative stability. Unit root tests revealed a mix of I(0) and I(1) variables, validating the ARDL method. The bounds test confirmed long-run relationships (F = 39.46 > 3.18). Long-run estimates showed private investment significantly increased GDP (4.55, p<0.01), while labour force participation (0.45) and balance of trade (0.64) were positive; inflation reduced growth (–0.05). Short-run results showed negative effects from private investment (–0.15) and inflation (–0.0013), with a 5% adjustment speed to equilibrium. The study concludes that policies aimed at improving the efficiency of public investment and strengthening the private sector investment climate are critical for sustaining long-term economic growth in Nigeria.
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