Financial Development as a driver of Investment Ecosystem Expansion: Evidence from Nigeria.

Abstract

This study examined the impact of financial development and macroeconomic determinants on gross capital formation in Nigeria based on the annual data covering the period from 2000 to 2024. The ARDL model is used to assess the relationship between gross capital formation (GCF) and credit to the private sector (CPS), broad money supply(M2), assets of the banking sector (BA), stock market capitalization (SMC) in the short run and in the long run. It is found that the variables have a stable long-run relationship, which is supported by the ARDL bounds test and the presence of a significant error correction term. From the findings of the research work, it can clearly be seen that the variables such as CPS and M2 have a very significant positive impact on gross capital formation in both the short and long run, and also BSA and SMC have a positive impact, although not significant. However, there are some negative effects of variables such as inflation rate, interest rate, and exchange rate on investments, and the exchange rate volatility is the most crucial variable among these, which negatively affects capital formation in Nigeria.