Impact Of Household Consumption Expenditure On Private Investment In Nigeria

Abstract

This study examined the impact of household consumption expenditure on private investment in Nigeria over the period 1990 to 2024. Specifically, the study investigated the effects of household expenditure on housing and household expenditure on electricity on private investment, while interest rate was included as a control variable. The study was motivated by the persistent decline and instability in private investment despite rising household consumption expenditure in Nigeria. Annual timeseries data were sourced from the Central Bank of Nigeria Statistical Bulletin, World Development Indicators, and National Bureau of Statistics. The study adopted the Error Correction Model (ECM) estimation technique following the confirmation of mixed integration orders among the variables through the Augmented Dickey-Fuller (ADF) unit root test and the existence of long-run relationship using the ARDL Bounds test approach. The empirical findings revealed that household electricity expenditure exerts a negative effect on private investment in Nigeria. Specifically, the lagged electricity expenditure variable was found to be statistically significant and negatively related to private investment, implying that rising electricity costs crowd out productive investment activities. The result further showed that previous private investment positively influences current investment performance, indicating investment persistence over time. The error correction term was negative and statistically significant, confirming the existence of long-run equilibrium relationship among the variables and indicating that approximately 9.1% of short-run disequilibrium is corrected annually. The study concludes that excessive household expenditure on essential utilities, particularly electricity, weakens investment capacity in Nigeria. The study therefore recommends improved electricity infrastructure, affordable housing policies, and investment-friendly macroeconomic policies to stimulate sustainable private investment growth.