This paper simulated the inter-relationships among interest rates, savings and investment in Nigeria between 1993 and 2010, using historical data on Nigeria spanning a period of 18 years (i.e. 1975-1992
INTRODUCTIONAlthough questions of interest rates, savings and capital information (investment) have been at the core of economic analysis for two to three centuries, the connections among them and the directions of causality are still far from clear. The traditional view in the literature is that, in developing countries, low income preclude the generation of savings, and hence the mobilization of investment. This view is however challenged by the conventional view that low rates of return to investment (savings) cause low savings, which in turn affect the level of investment. The conventional view, thus implicitly assume that savings (and hence investment) respond positively to increases in rates of return to investments (savings). This ‗new' view has implication for development strategies since it tend to suggest that the implementation of a ‗realistic' interest rate policy will encourage increased savings and capital formation, and lead to higher growth.Since the attainment of independence, Nigeria has implemented two interest rates regimes, viz., the low and fixed interest rates regime between 1960 and 1986, and the dynamic interest rates regime since economic deregulation in 1987. Under both interest rates regimes, efforts were geared essentially towards inducing savings for the purpose of channelling it into investment so as to attain higher output and growth. The operation of diverse interest rates (policy) regimes notwithstanding, it is still pertinent to inquire about the inter-relationships among interest rates, savings and investment in Nigeria, and what the connections and the directions of causality imply for interest rates policy, and savings mobilization and investments in Nigeria. Consequently, assuming diverse economic doctrines
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