The Impact of Capital Formation and Economic Growth

Filed in Articles by on October 18, 2020

The Impact of Capital Formation and Economic Growth


The study investigated the effect of capital formation on economic growth in Nigeria. The data were collected from the Central Bank of Nigeria Statistical Bulletin (2015).

To examine the impact of capital formation, interest rate, inflationary rate and stock market capitalization on economic growth in Nigeria, the study employed the ordinary least square method

The test for the properties of time series, Philip-perron test was used to determine the stationary of the variables and it was discovered that gross fixed capital formation and economic growth are integrated of order zero (I(0),

Johansen test was used to determine the order of integration while error correction model was employed to determine the acceleration of adjustment to equilibrium.

The empirical findings suggest that capital formation has a negative and insignificant effect on economic growth in Nigeria for the period under investigation.

Both Stock market capitalization and interest rate showed a positive effect on economic growth in Nigeria for the period under review, while the inflationary rate shows a negative impact on economic growth in Nigeria.


The burning issue confronting developing countries such as Nigeria is capital scarcity and there is neither danger of excessive saving or gap between consumption and income.

A country which is economically advanced or backward is usually judged from the standpoint of the available capital per head; those considered as poor ones are of necessity faced with an important problem of capital scarcity.

With low per capita, economic activity is carried out without the assistance of large quantities of capital assets such as machinery and equipment which are commonplace in wealthier and advanced countries.

Nigeria overall economic performance since independence in 1960 has been unimpressive. Despite the availability and expenditure colossal amount of foreign exchange derive mainly from its oil and gas resources, economic growth has been weak and the incidence of poverty has increased.


Akpokodje, G. (1998), “Macroeconomic Policies and Private Investment in Nigeria” In Rekindling Investment for Economic Development in Nigeria by Ben E. Aigbokhan (ed). Selected papers for the 1998 Annual Conference, the Nigerian Economic Society.
Akujuobi,  A. B. C. (2008), “Foreign Direct Investments and Capital Formation in Nigeria; Journal of Research in National Development; Volume 5 No.2 (2007).
Bakare, A. S. (2011). “A Theoretical Analysis of Capital Formation and Growth in Nigeria” Far East Journal of Psychology and Business Vol. 3 No. 1 April 2011.
Donwa. Pat &Odia (2006), The impact of globalization on gross fixed capital formation in Nigeria. A Trans – campus publication
Herandez-Cata, E. (2000). “Raising Growth and Investment in Sub-Saharan Africa: What Can be Done?”,Policy Discussion Paper: PDP/00/4. International Monetary Fund, Washington, D.C.
Jhinghan, M.L. (2003). Advanced Economic Theory (Micro and Macro) 12th Edition New Delhi. Vrinda Publications.

Comments are closed.

Hey Hi

Don't miss this opportunity

Enter Your Details