Corruption and Domestic Investment Relationship in Nigeria: an Empirical Investigation

Abstract

Although studies have made efforts to examine corruption-investment relationship, little has been done to examine the effect of corruption on domestic investment in Nigeria. This study examines the effect of corruption on domestic investment in Nigeria from 1996 to 2017 using quarterly data. Employing the Autoregressive Distributed Lag (ARDL) bounds testing approach, the result of the bounds testing to cointegration reveals that there is a long-run relationship between corruption and domestic investment along with domestic savings, lending interest rate, foreign direct investment and GDP growth rate. The results of estimation indicate that corruption has a significant and negative effect on domestic investment in Nigeria. Thus, an improvement in the corruption perception index CPI (lesser corruption) leads to an increase in domestic investment. The results also show that domestic savings, foreign direct investment and lending interest have positive significant effect on domestic investment. Based on these findings, this study recommends that government should employ policies that will encourage domestic investment via reducing corruption. These policies should be complemented with measures that promote domestic savings and FDI inflow, as well as reducing the lending rate.