Effects of Interest Rate on Domestic Investment in Nigeria
Chapter One
OBJECTIVE OF THE STUDY
The objectives of the study are;
- To determine the impact of real interest rate on Domestic Investment
- To investigate the effect of prime lending rate on Domestic Investment
- To determine the effects of interest rates in domestic investment in Nigeria
CHAPTER TWO
REVIEW OF RELATED LITERATURE
THEORIES OF INTEREST RATE
Several theories explained why interest is paid (Elliot, 1984). The theories of interest can be divided into two; the monetary theories and the non-monetary theories. The monetary theories are those theories of interest that stress the liquidity aspect of money, while the non-monetary theories of interest are those theories which give consideration to savings and productivity aspect of money. However, for the purpose of this study, we shall examine the three theories of interest rate; the classical or loanable funds theory, the liquidity performance theory (The Keynesian approach), the general equilibrium approach (Soyibo and Adekanye, 1992).
THE CLASSICAL THEORY OF INTEREST RATE
The classical theory postulated that interest rate is an equilibrium factor between the demand for and the supply of investible funds. The equality between savings and investment is brought about by the mechanism of interest rate. When saving exceeds investment, rate of interest will fall discouraging savings on one hand and encouraging investment on the other hand. This tendency continues operating till equality between savings and investment get established. Similarly, if investment exceeds savings, rate of interest rises to discourage investment and encourage savings till equality is established between savings and investment. Thus, classical system regards rate of interest as the equilibrium force between savings and investment. Classical economists approach to savings investment equality is based on the assumption of full employment in the economy system (Mwega,Ngola, and Mwangi, 1990).
INTEREST RATE AND INVESTMENT FRAMEWORK
Private domestic investment refers to the production or purchase of investment goods such as industrial plants (i.e., factories and other industrial structures), production equipment (e.g., machinery and tools), and changes in inventories (i.e., goods produced but not jet sold). Furthermore, interest rates are regarded as the rental payments for the use of credit by borrowers and return for parting with liquidity by lenders (Gbosi, 2005). According to CBN (2016) interest rate is the amount charged on borrowed money, expressed as a percentage of the principal, by a lender to a borrower for the use of money. It is often expressed as a percentage of the amount borrowed (principal) for one year or any other time period month, week, day etc. as agreed by the lender and borrower at the time of contracting the loan. Specifically, interest rate is the percentage of the principal that is paid as a fee over a specified period of time. It can as well be described as the rental payments for the use of credit by borrowers and return for parting with liquidity by lenders over time. Interest rates play vital roles in the day to day transaction within the economy. These roles are spelt out as follows:
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to effects of interest rate in domestic investment in Nigeria
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on effects of interest rate in domestic investment in Nigeria. 200 staff of CBN was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain effects of interest rate in domestic investment in Nigeria.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of effects of interest rate in domestic investment in Nigeria.
Summary
This study was on effects of interest rate in domestic investment in Nigeria. Three objectives were raised which included; To determine the impact of real interest rate on Domestic Investment, to investigate the effect of prime lending rate on Domestic Investment, to determine the effects of interest rate in domestic investment in Nigeria. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN in Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made accountants, human resource managers, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
The study concludes that sustainable Domestic Investment does not only depend on interest rate. Since Domestic Investment plays a vital role in stimulating the economy
Recommendation
- The financial institutions should be reorganized and restructured
- Monetary authorities should promote policy that will improve deposits and also make available loanable funds to encourage investment.
- Policies that will promote the savings culture by the citizens should be encouraged.
- Governments should ensure stability in the country to improve domestic investment in Nigeria.
References
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