The effect of monetary policy on investment in Nigeria’s construction sector: Evidence from the CBN (2000–2020).
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Background of the study:
Monetary policy plays a vital role in shaping investment climates, particularly in capital-intensive sectors like construction. In Nigeria, the Central Bank of Nigeria (CBN) has implemented various monetary measures, such as interest rate adjustments, liquidity provisions, and credit facilitation, aimed at stimulating investment in the construction sector. These policies are intended to lower borrowing costs, encourage private sector financing, and foster infrastructural development. The construction sector, which is critical for economic growth, benefits significantly from a conducive monetary environment (Oluwaseun, 2023). However, the effectiveness of these measures is often mitigated by external economic shocks, regulatory challenges, and market uncertainties (Ibrahim, 2024). Recent empirical studies indicate that while accommodative monetary policies can spur investment in construction, persistent challenges such as credit constraints and market volatility continue to hamper progress (Chinwe, 2024). This study critically evaluates the impact of monetary policy on investment levels in Nigeria’s construction sector, focusing on the outcomes of CBN initiatives and identifying the factors that mediate policy effectiveness.
Statement of the problem:
Despite the implementation of supportive monetary policies, investment in Nigeria’s construction sector remains suboptimal. High interest rates, market uncertainties, and regulatory constraints often undermine the intended effects of CBN measures (Oluwaseun, 2023; Ibrahim, 2024). These challenges result in reduced capital inflows and slow infrastructural development, hindering overall economic growth. The study aims to examine the factors that limit monetary policy effectiveness and to propose strategies to improve investment flows.
Objectives of the study:
- To evaluate the impact of CBN monetary policies on investment in the construction sector.
- To identify challenges affecting policy effectiveness in stimulating construction investment.
- To recommend measures to enhance investment in the construction sector.
Research questions:
- How do CBN monetary policies affect construction sector investment?
- What are the primary challenges limiting policy effectiveness?
- What strategies can increase investment in the construction sector?
Research Hypotheses:
- Accommodative monetary policies positively influence construction investments.
- Market uncertainties and regulatory constraints reduce policy impact.
- Policy reforms can further stimulate investment in the construction sector.
Significance of the study:
This study is significant as it assesses the role of monetary policy in driving investment in Nigeria’s construction sector. The insights gained will help refine CBN strategies, promote infrastructural development, and ultimately support broader economic growth by addressing key investment barriers (Chinwe, 2024).
Scope and limitations of the study:
This study is limited to examining the impact of monetary policies on investment in Nigeria’s construction sector, focusing on CBN measures and related market challenges.
Definitions of terms:
- Monetary Policy: The process by which a central bank manages the money supply and interest rates.
- Construction Sector: The industry involved in building infrastructure and real estate developments.
- Investment: The allocation of resources to projects expected to yield future economic benefits.
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