EFFECT OF INFLATION ON INVESTMENT IN NIGERIA (1990-2022)

Abstract This study investigated the effect of inflation on investment in Nigeria from 1990 to 2022. Persistent inflation remains a major macroeconomic challenge threatening Nigeria’s private and public investment climates. The study utilized secondary annual time-series data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and the World Bank Development Indicators. Variables examined included Gross Fixed Capital Formation (proxy for investment), Inflation Rate (Consumer Price Index), Real Gross Domestic Product (GDP), Real Interest Rate, and Exchange Rate. The econometric methodology employed was the Autoregressive Distributed Lag (ARDL) cointegration technique to capture both short-run and long-run dynamics.The empirical results revealed a negative and statistically significant relationship between inflation and investment in Nigeria over the long run. High inflation rates erode purchasing power, increase the cost of capital, and create macroeconomic uncertainties that discourage long-term investment. In the short run, the impact was also negative but less pronounced, indicating a lag in investor response to price instability. Additionally, GDP growth showed a positive and significant effect on investment, while high interest rates further suppressed investment inflows. The study concludes that price instability acts as a major deterrent to sustainable investment in Nigeria. Consequently, the study recommends that the Central Bank of Nigeria should implement tight and inflation-targeted monetary policies. Government must also implement structural reforms to reduce production costs, stabilize the exchange rate, and create a predictable macroeconomic environment conducive to domestic and foreign investments.