Private Investment Behaviour and Trade Policy Practice in Nigeria
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Date
2008-04-01
Authors
Phillip C. Omoke
Dipo T. Busari
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
This study presents an empirical assessment of the impact of trade policy practice and
its credibility on private investment using firm level data of 67 Nigerian firms over the
period 1980–2003. The study draws a distinction between sample variability and
uncertainty and constructs measures of the volatility of innovations to key trade and
macroeconomic variables. It then examines their association with private corporate
investment by adding these constructed measures to an empirical investment equation
that is estimated using panel data econometric method. The results underscore the
robustness of the links among private investment, trade policy and macroeconomic
uncertainty. Many of the trade and volatility measures considered in the paper show
strong negative association with private investment. Furthermore, the study observed
that trade policy practice in Nigeria has deterred investment by making the cost of
importing high, which particularly affects firms with high import intensity. Three main
channels are identified through which trade policy practice hinders corporate investment
in Nigeria. First is through restrictions on international capital movement. The second
is through the impact of rapid and variable devaluation of the exchange rate, which has
led to a more attractive speculative market and lowed the competitiveness of domestic
firms, and finally through import restrictions in terms of tariff and cost of importing. In
addition, the negative impact of real exchange rate uncertainty on investment is
significantly larger in firms that are import intensive. The study argues, among other
things, that there is the need to liberalize international capital movement in Nigeria and
drastically reduce the cost of importing capital goods
Description
HG 5881 .A3 B87 2008
Keywords
Investment - Foreign - Nigeria , Nigeria - Commercial - Policy , Commercial Policy , Private investment, , trade policy credibility , , macroeconomic uncertainty , panel data estimation,