Effect of Crude Oil Prices, Exchange Rate, Inflation Rate and Government Expenditure on Private Investments in Nigeria

Abstract

This study analyzed the heterogeneous effects of crude oil price variations, exchange rate, inflation rate and government expenditure on private investment in Nigeria from the first quarter of 1990 to the fourth quarter of 2023, employing an ex post facto research design and quantile regression methodologies. Quarterly data on crude oil prices, exchange rate, inflation rate, government expenditure and private investments obtained from the Central Bank of Nigeria, World Bank Development Indicators, and OPEC were utilized. The results showed that fluctuations in crude oil prices and exchange rate depreciation exert significant adverse effects on private investments. Government spending had a significant effect while inflation rate had an insignificant effect on private investments in Nigeria. The study recommends that government manage a sovereign wealth or stabilization fund and intensify efforts to diversify the economy toward manufacturing, agriculture, and technology to reduce oil dependence. The Central Bank of Nigeria should adopt a stable and market-driven exchange rate policy, promote non-oil exports, and encourage local production to limit exposure to foreign exchange volatility. Government should focus on productive spending on infrastructure, power, and transport, while improving transparency and efficiency in public spending to crowd in private investment, and should strive to maintain price stability within single-digit levels by coordinating fiscal and monetary policies.