This study examines the relationship between government expenditure on security and private investment in Nigeria over the period 2000-2024, incorporating inflation and interest rates as additional explanatory variables. Grounded in public goods theory, the study hypothesizes that effective security provision creates an enabling environment for private investment by protecting property rights, reducing transaction costs, and lowering risk premiums demanded by investors. The Dynamic Ordinary Least Squares (DOLS) methodology was employed to estimate long-run cointegrating relationships among the variables, addressing potential endogeneity and serial correlation problems inherent in standard estimation techniques. The findings reveal a positive and statistically significant relationship between government expenditure on security and private investment, indicating that a 1% increase in security expenditure is associated with approximately 1.02% increase in private investment. Conversely, inflation exhibited a negative and statistically significant effect on private investment, confirming that macroeconomic instability deters capital formation by creating uncertainty about future returns. Interest rates similarly demonstrated a negative insignificant relationship with private investment, consistent with neoclassical investment theory predictions that elevated borrowing costs reduce investment viability. The study concludes that security provision and macroeconomic stability function as complements in promoting private investment, with neither alone sufficient for optimal outcomes. Policy recommendations include maintaining effective security expenditure, prioritizing inflation control through credible monetary policies, reducing interest rates via financial sector development, and adopting coordinated policy approaches that recognize the interdependence of security reforms and macroeconomic management in stimulating private sector capital formation.
Emerenini et al. (2026) studied this question.