Capital Formation and Economic Growth in Nigeria

Abstract

The impact of capital formation on the economic growth of Nigeria was studied using multiple regressions technique. It was ascertained that in the short run, gross fixed capital formation had no significant impact on economic growth; while in the long run; the VAR model estimate indicates that gross fixed capital formation, total exports and the lagged values of GDP had positive long run relationships with economic growth in Nigeria. It was equally ascertained that there exists an inverse relationship between imports (IMP), Total National Savings (TNSV) and economic growth; while GDP was seen to have a unidirectional causal relationship with export (EXP), Gross fixed capital formation (GFCF), Import (IMP) and Total national saving (TNSV). The study therefore recommended that the federal government of Nigeria should reprioritize her needs by cutting down on her bogus/ bourgeoning recurrent expenditures which is about 70% of her total expenditure profile. This will help free up the much needed savings for investments in infrastructural development. The study further recommends that Nigerians must be made to mobilize the desired level of gross national savings that could be big enough to attract foreign direct investments .This is very vital as FDI will help to complement our domestic savings. The study further recommends that government should work on her potentially exportable commodities, the proceeds of which should be utilized in the procurement of needed technical tools and components. Lastly, basic infrastructures like good roads, electricity supply and security must be seen to be adequate. This will help to reduce the drudgeries associated with setting up of industries.