How much is too much? The threshold effects of interest rate on growth and investment in Nigeria

Abstract

This study establishes whether there is a threshold above which the effect of the interest rate on economic and investment growth changes. Hansen's (2000) threshold estimation approach is used for Nigeria over the period 2006 2017. The findings show that that there are two thresholds that are well-identified by the data. The estimated values of the interest rate thresholds are 21.1% for GDP growth and 22.6% for investment growth. That is, the interest rate contributes positively to economic growth when it is below 21.1%, but becomes a major concern beyond the 21.1% level. Similarly, the interest rate contributes positively to investment growth when it is below 22.6%, but becomes a major concern beyond the 22.6% level. The logical conclusion is that Nigeria, and other developing countries as well, should aim to achieve interest rate levels that do not inhibit growth and investment by adopting polices that put interest rates on the right trajectory below the estimated thresholds.

To cite: Olaniyi, E. (2019). How much is too much? The threshold effects of interest rate on growth and investment in Nigeria. Journal of Management & Administration (2019/1), 69–98. https://hdl.handle.net/10520/EJC-1646bd19c7