ECM Insights into Domestic Savings, Investment and Economic Growth Dynamics in Nigeria

It is impossible to overstate the importance of investments and savings for the overall growth of an economy. The study examined Nigeria's dynamics of domestic savings, investment and economic growth through the Error correction mechanism (ECM). With the use of time series data from 1990 to 2021, the study seeks to discover the interplay between foreign direct investment, interest rates, capital formation, and domestic savings within the Nigerian economy. The study found that foreign direct investment coupled with a relatively stable interest rate played a critical role in enhancing domestic savings and fostering economic growth. Additionally, the analysis showed that capital formation and foreign direct investment positively and significantly impacted domestic savings. The error correction model shows that any short-term deviations from long-term equilibriums between savings, investment and growth are corrected over time, reinforcing the importance of policy consistency. A key recommendation is that the government implement policies that encourage saving and maintaining macroeconomic stability, creating a stable environment with investment opportunities and attractive interest rates that will strengthen savings, foster capital formation, and drive long-term economic growth. The paper shows the need for a strategic approach to managing both domestic and foreign investments to ensure sustainable economic development in Nigeria.