ABSTRACT
This research adopted the Neoclassical growth model which is an extension of the 1946 Harrod-Domar model, link to the solow-swan growth model of 1956. Also time series data that span the period of 1981–2018 was used. the study examines the Impact of External debt and External reserve on domestic investment in Nigeria. Using the Unit root test analysis, the researchers’ objectives were; to examine if each of the variables employed attained stationarity
in order of integration of the individual series under consideration.The study extended its investigation into the causal relationship between domestic investment, external debt, external reserve, Gross capital formation, exchange rate and inflation rates using Johanson cointegration test, so as to ascertain if domestic investment has a long run relationship with external debt, external reserve, gross capital formation, exchange rate and inflation rates. The unit root and co-integration test were conducted on all the variables and the result revealed the existence of stationarity and long run relationship among them. The empirical result shows that External Debt was significant and has a positive relationship with domestic investment in Nigeria while External reserve was also significant but has a negative relationship with domestic investment in Nigeria. Gross capital formation was not significant and also has a negative relationship with domestic investment. The other variables employed such as exchange rate and inflation rate showed or exhibited negative effect or relationship with domestic investment respectively. However while Exchange rate was not significant, Inflation rate was statistically significant. The R-square and the adjusted R-square values of about 1.0(1percent) and 1.0 (1 percent) shows that the regressors has a low explanatory power with respect to variations in the dependent variable. The Durbin-watson statistics of 0.997885 shows a weak autocorrelation linear relationship between the disturbance term
Therefore, it was recommended from this study that there is the need for the government of the country to ensure the enabling environment by not being a huge indebted Nation and as well as having a sizable amount of reserves as this gives investors confidence and attracts both domestic and foreign investors to invest in the domestic economy as this has a way to boost our production line as well as economic stability.
