IMPACT OF INTEREST RATES ON SAVINGS AND INVESTMENT IN NIGERIA

  • Chapters:5
  • Pages:75
  • Methodology:Ordinary Least Square
  • Reference:YES
  • Format:Microsoft Word
(Banking and Finance)
IMPACT OF INTEREST RATES ON SAVINGS AND INVESTMENT IN NIGERIA
ABSTRACT

In this study, an attempt is made to investigate the interest rates and its savings and investment determination implications in Nigeria. The investigation covers the period 1980-2014 and employs the Ordinary Least Squares technique of estimation in obtaining the empirical analysis. A theoretical analysis was first undertaken to explain the relationship between changes in interest rate and investment determination with explanatory variables affecting both interest rate changes and investment followed by an empirical analysis that discussed estimation results.
Specifically, the results from the empirical analysis show that variation in interest rate played a negative and highly significant in savings decision in the economy. In other word, it has negative impact on savings decision; interest rate does not have any significant impact on investment decisions in the country. Investment is made outside of consideration for the returns on investment; the level of income played a positive and a highly significant role in both savings and investment decisions in Nigeria.
    The study recommends among others that Interest rate reform should be a component of the broad package aimed at facilitating financial inter-mediation and monetary management as well as enhancing economic growth in developing countries. However, in high inflation countries like Nigeria, a strong and credible stabilization programme and an equally strong set of prudential guide lines are generally the best initial policy measures.
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1    Background to Study            
1.2    Statement of Research Problem        
1.3    Objective of the Study            
1.4    Statement of Hypotheses            
Significance of the Study            
1.6    Scope of the Study                    
1.7    Limitation of the Study            
CHAPTER TWO: LITERATURE REVIEW
2.1    Introduction                    
2.2    What is Interest Rate?        
2.3    Keynes’ Liquidity Preference Theory of Interest    
2.4    Demands for Money                
2.5    Determination of the Rate of Interest:    
2.6    Criticisms                    
2.7    Theory of Term Structure of Interest Rate        
2.8    Evidence of Interest Rate and Investment
Around The World                    
2.9    Theoretical Framework                
CHAPTER THREE: METHODOLOGY OF THE STUDY
Introduction                     
3.2    Sources of Data                    
3.3    Model Specification                
3.4    Method of Data Analysis        
CHAPTER FOUR: ECONOMETRIC ANALYSIS AND INTERPRETATION OF RESULTS
4.1     Introduction                    
4.2     Econometric Analysis                
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND CONCLUSION
5.1     Summary of Findings                
5.2     Recommendations             
5.3     Conclusion                    
Bibliography                    
Appendices                    
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND TO STUDY
    In Nigeria, interest rate policy is among the emerging issue in current economy savings which increasing employment output and efficient financial resources utilization. The administration of low interest rate which was intended to encourage investment was witnessed in the 1950s to mid-1960s.
    In the third quarter (3/4) of 1986, Structural Adjustment Programme (SAP) by the then head of state General (RTD) Ibrahim Gbadamosi Babangida this programme ushered in an area when fixed how interest rate was gradually, replaced by a deregulated interest rate regime where rates were more influenced or determined by the market force. The policy shift de-emphasized direct investment stimulation through the low interest rates. The mobilized fund was intended for investment.
    In Nigeria, the pursuit of the two interest rate regime provide a case study for Keynesian interest rate investment relationship and the McKinnon Shaw interest rate saving and investment hypothesis. Several reason has been given as to why people invest and save. Some of these reasons are: the direction of interest rate, the return that is expected from such an investment, the interest accrues to savers and some other developmental resources. It is obvious that the higher the rate of interest the lower the level of investment and also the lower the rate of interest, the higher the level of investment.
    However, this study focuses on the relationship between interest rate, saving and investment. McKinnon and Shaw (2002) conclude that higher interest rate reduce saving which can be utilized in investment therefore, the two transmission channeled through which interest rate affect investment, this relate to interest rate as a cost of fund (capital). Also interest rate encourages financial savings which can be invested (self-finance) or lent out to borrow as loan (external finance).
1.2    STATEMENT OF RESEARCH PROBLEM
    The upsurge in real interest rate observed world wide in the early 1980’s raised a wide spread concern about their possible detrimental economic effects. Numerous studies were carried out to measure the impact of  high interest on key economy variables such as growth of output, investment factor productivity observed in several cross – country studies World Bank (1989) and Galbis (1992) that countries with high real interest rate generally intended to exhibit faster output growth but not higher investment, encourage a more efficient allocation of resources which raises overall productivity y such that the net impact on growth is positive while other studies e.g (Khatkhate, 1998) have questioned the empirical robustness of these finings. A basic lesson from the study shows that higher interest rate on investment and growth mainly depends on what caused interest rate to rise in the first place.
    In Nigeria, interest rate was extensively high prior to the adoption of SAP in 1986. The economic rational behind this extensive control of interest rate and other elements of financial market have been motivated by a variety of factors including the desire to influence the flow of credit to preferred sectors of the economy and the concern that market determines interest rate could result in a serious imperfection in lending rate that would increase the rate cost of capital and thereby discourage investment.
    Moreover, such high normal investment rate would also increase in cost of servicing the public debt. Thus, interest rate policy should be used in increase the availability of credit in order to encourage the accumulation of domestic financials assets of offering holders of these assets sufficiently attractive rates. The deregulation of interest of interest rate during the SAP period seems to be justified by this consideration.
    The market determined interest rate is meant to mobilize financial savings and efficient channeling of such savings into productive investment.  The deregulation which resulted in concurrent increase in interest rate and savings into productive investment issues and focus of this study remain the key. The study will try to determine;
The impact of interest rate on saving and investment in Nigeria.
Whether the savings generated during this period was transformed into real investment in Nigeria.
1.3    OBJECTIVE OF THE STUDY
    The objectives of this study are to:
Determine the impact of interest rate on savings and investment in Nigeria.
Examine whether the savings generated during this period was transformed into real investment in Nigeria.
1.4    STATEMENT OF HYPOTHESES
    The hypotheses to be tested in this study are;
Interest rate has positive impact on savings in Nigeria.
Interest rates positively affect the level of investment in the Nigerian economy.
SIGNIFICANCE OF THE STUDY
The importance of interest on savings and investment in the Nigeria economy cannot be over emphasized.
Hence this study will be useful to bankers and policy markets in making decision ion how to influence banking sector development by benefiting from the outcome of globalization. Student in Nigeria and other developing countries intending to broaden their knowledge about the hexes of interest rates and its impact on savings and investment within the context of the Nigerian economy.
1.6    SCOPE OF THE STUDY
    This study focuses on the impact of interest rate on savings and investment in Nigeria relevant date will be sourced from the Central Bank of Nigeria statistical Bulleting and the Nigerian Stock Exchange covering the period 1980 to 2010.
1.7    LIMITATION OF THE STUDY
    This study is constrained by a lot of factors such as getting relevant data, the time spent on sorting and organizing the work, combined with normal academic activities and other logistic.   

Share This

Project Details

Department Banking and Finance
Project ID BFN0429
Price ₦3,000 ($9)
Chapters 5 Chapters
No of Pages 75 Pages
Methodology Ordinary Least Square
Reference YES
Format Microsoft Word

500
Leave a comment...

    Project Details

    Department Banking and Finance
    Project ID BFN0429
    Price ₦3,000 ($9)
    Chapters 5 Chapters
    No of Pages 75 Pages
    Methodology Ordinary Least Square
    Reference YES
    Format Microsoft Word

    Related Project Topics

    CHAPTER ONE INTRODUCTION 1.1 BACKGROUND TO STUDY In Nigeria, interest rate policy is among the emerging issue in current economy savings which increasing employment output and efficient financial resources utilization. The... Continue Reading
    CHAPTER ONE INTRODUCTION 1.1 BACKGROUND TO STUDY In Nigeria, interest rate policy is among the emerging issue in current economic policy as regard the role of it is expected to play in the deregulated economy in inducing... Continue Reading
    • Type:Project
    • ID:ECO0031
    • Department:Economics
    • Pages:62
    • Chapters:5
    • Methodology:Ordinary Least Square (OLS) Method
    • Reference:YES
    ABSTRACT The introduction of interest rate was first abolished during the medieval time and was legal in 1545 by King Henry VIII who abolished the usury laws and... Continue Reading
    • Type:Project
    • ID:ACC0443
    • Department:Accounting
    • Pages:107
    • Chapters:5
    • Methodology:Chi Square
    • Reference:YES
    MARKET INTEREST RATES AND COMMERCIAL BANK PROFITABILITY: (A CASE STUDY OF FIRST BANK OF NIGERIA PLC (2000 – 2004) TABLE OF CONTENTS CHAPTER ONE: INTRODUCTION 1.1 Background of the study 1.2 Statement of the study 1.3 Objective of the study 1.4 Scope of the study 1.5 Significance of study 1.6... Continue Reading
    • Type:Project
    • ID:ACC0416
    • Department:Accounting
    • Pages:126
    • Chapters:5
    • Methodology:Simple Percentage
    • Reference:YES
    THE IMPACT OF EXCHANGE RATE FLUCTUATION ON INTERNATIONAL TRADE (EXPORT) IN NIGERIA ABSTRACT International trade and other economic activities between nationalities have greatly expanded in modern times. Movements of goods and services over great distances have made possible the consumption of such... Continue Reading
    THE IMPACT OF INTEREST RATE DEREGULATION ON COMMERCIAL BANKS’ LENDING OPERATIONS IN NIGERIA (A SURVEY OF UNION BANK OF NIGERIA PLC ENUGU PROPOSAL Interest rate was before 1st August, 1987, statutorily regulated by the Central Bank of Nigeria. But this out of the tune with the liberalization... Continue Reading
    • Type:Project
    • ID:ACC0583
    • Department:Accounting
    • Pages:115
    • Chapters:5
    • Methodology:Simple Percentage and chi square
    • Reference:YES
    ABSTRACT This researcher work is a survey of an analysis of the effect of interest rate deregulation on the profitability of commercial banks. The research to work tried to find... Continue Reading
    • Type:Project
    • ID:ACC0449
    • Department:Accounting
    • Pages:129
    • Chapters:5
    • Methodology:Chi Square
    • Reference:YES
    ABSTRACT Capital investment and the impact in Nigeria and other third World countries are very slow when compared with capital investments of the advanced countries like USA, Britain, Germany etc. The causes of these differences range from... Continue Reading
    TABLE OF CONTENT CHAPTER ONE 1.1 General introduction 1.2 Rationale of the study 1.3 Significance of the study 1.4 Background of the study 1.5 Definition of plan CHAPTER TWO 2.1 literature review 2.2 capital investment and the national development... Continue Reading
    CHAPTER ONE 1.0    INTRODUCTION 1.1    BACKGROUND OF THE STUDY Before 1987, the interest rate management policy was one of the control functions by the Central Bank of Nigeria (CBN) which fixed the minimum savings... Continue Reading