GOVERNMENT BORROWING AND PRIVATE SECTOR INVESTMENT IN NIGERIA: AN EMPIRICAL ANALYSIS

The study examined the impact of government borrowing on private sector investment in Nigeria covering the period 1990-2016. Time series data were utilized which were collected from appropriate secondary sources. The study estimated a multiple regression model using the ordinary least squares method. However, before model estimation was carried out, the Augmented Dickey-Fuller unit root test of stationarity of the time series variables and Johansen-Juselius cointegration test were first conducted. Findings from the unit root test revealed that time series variables were integrated of order one, i.e., each variable became stationary after first differencing. The results of the cointegration test showed that a long-run relationship exists between the time series variables considered. Findings from the regression analysis showed that government domestic borrowing negatively and significantly impacted on private sector investment; indicating that government domestic borrowing crowded out private sector investment during the period under consideration. Findings also revealed that government foreign borrowing positively and significantly impacted on private sector investment; indicating that government domestic borrowing crowded in private sector investment during same period. In view of the fact that government domestic borrowing crowd-out private sector investment in Nigeria, it is recommended that government should endeavour to finance its budget deficit through the equity development funds and bond instruments of the Nigerian capital since government borrowing through the money market raises the interest rate thereby crowing out private sector investment. Also, to avoid crowding out effect of government borrowing, government should endeavour to put in place fiscal prudent measures that would favour the private sector investment by discouraging high government spending in areas that do not have direct positive impact on private sector investment growth.