Threshold Analysis of Fiscal Policy Variables and Private Investment in Nigeria

Abstract

This paper investigates the relationship between fiscal policy variables and private investment in Nigeria for the period 1970 – 2019 with a view to establishing the threshold level of each of the key fiscal policy variables in relation to private investment. The study employed annual and quarterly time series data covering the period 1970:1 to 2019:4 which were sourced in part from the Central Bank of Nigeria’s Statistical Bulletin and National Bureau of Statistics (NBS). Data collected were analyzed using econometric techniques. The variables used were private domestic investment, budget deficit, recurrent and capital government expenditure, oil and non-oil government revenue and public debt. The main findings are: First, there is an evidence of a double threshold effects of the fiscal balance. When exceeding a budget deficit level of 3.98 per cent of GDP or a fiscal surplus level of 3.2 per cent of GDP, private investment is negatively affected. Also, increase in government total expenditure beyond the third regime made private investment to become less productive. As regards public debt, the results revealed that private investment had the most positive impact on economic growth in the first regime of public debt. A resort to public debt beyond this level will make private investment less productive thereby inhibiting growth. The study therefore, concludes that government should be cautious in resulting to debt instruments to finance its deficit. It should also make a concerted effort to increase its expenditure especially in the provision of infrastructural facilities as this directly influence private investment decision positively.