FINANCIAL SYSTEM EFFICIENCY, MONEY SUPPLY VELOCITY AND DOMESTIC INVESTMENT IN NIGERIA
Abstract
Theoretical predictions indicate a bio-directional nexus between financial system efficiency and real economic growth with implications for the value of investment in the productive sector of the economy. Against this backdrop, the paper examined the impact of financial system efficiency and money supply velocity on domestic investment in Nigeria. The study strives to specifically evaluate the impact of financial system efficiency, money supply velocity, real interest rate, net interest margin and inflation rate on gross domestic investment. Secondary data collated from the CBN statistical bulletin and the World Bank indicator for a period of 32 years (1990 to 2021) was used for the study. The ADF unit root test, Johansen cointegration test and the ordinary least square (OLS) econometric technique were used for the empirical investigation. The results from the empirical analysis reveal that financial system efficiency have a positive but insignificant impact on domestic investment in Nigeria. While money supply velocity and net interest margin had significant positive impact on domestic investment in Nigeria. On the other hand, real interest rate and inflation rate showed a negative impact on domestic investment and was found to be insignificant. The study recommends among others that the monetary authorities should revisit their structural policy frameworks that promote competition, innovation and efficiency of the financial system and overcome the problem of low investments, by maintaining a stable growth of the real money supply.