The Impact of Capital Formation on the Growth of Nigerian Economy

Abstract

The paper investigated the impact of capital formation on economic growth in Nigeria. The data were collected from Central Bank of Nigeria (CBN) statistical bulletin (2011).To analyze the impact of capital formation, stock market capitalization, inflation rate and interest rate on economic growth, the study employed Ordinary least square (OLS) technique. To test for the properties of time series, phillip-perron test was used to determine the stationarity of the variables and it was discovered that gross fixed capital formation and economic growth are integrated of order zero (I(0), Johasen co integration test was employed to determine the order of integration while erro correction model was employed to determine the speed of adjustment to equilibrium. The empirical findings suggest that capital formation has positive and significant impact on economic growth in Nigeria for the period under review this result corroborate the findings of Bakare (2011), Orji and Mba (2010). Stock market also showed a positive impact, while both inflation rate and interest rate has a negative impact on economic growth in Nigeria for the period under review but the impact is statistically insignificant. The result further shows a long run relationship between capital formation and economic growth in Nigeria for the period under review. Therefore emphasis should be place on accumulating capital in Nigeria as this will accelerate growth and development in Nigerian economy. The Nigerian stock market should be deepened more to enhance their contribution to the growth of the domestic economy.

Key Word: Capital Formation, Economic Growth, Inflation, Interest rate and stock market capitalization.