The Impact of Capital Formation on Economic Growth in Nigeria
CHAPTER ONE
Objective of the study
The objectives of the study are;
- To examine the effect of capital formation on economic growth in Nigeria.
- To determine if capital formation has any significant impact on economic growth in Nigeria.
- To determine the direction of significant causal relationship between capital formation and economic growth in Nigeria.
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
INTRODUCTION
To ascertain the relationship between capital formation and economic development, Jhingan (2006) asserted in his work that capital formation could not only result on the investment in capital equipment that leads to increase in production but again lead to employment opportunities. He further stressed that capital formation leads to technical progress which helps realize the economies of large-scale production and/or increases specialization and/or thus provides machines, tools and equipment for the growing labour force. Capital formation also leads to the expansion of market. He further accentuated that capital formation helped to remove market imperfections by the creation of economic and social overheads capital, and thus breaks the vicious circles of poverty both from the demand side and supply side. Even in the face of increasing population capital formation makes development possible. In overpopulated underdeveloped countries as it is in sub-Sahara Africa increase in per capita output is related to the increase in capital-labour ratio. Countries aiming at raising the capita labour ratio have to face two problems: (i) the capital-labour ratio fall with increase in population so that large net investment is needed to overcome the diminution of capital labour ratio. (ii) When population is increasing rapidly, it becomes difficult to have sufficient savings for the required quantity of investment, reason being that a low per capita income keeps the propensity to save at a low level in such a country. The only solution to these problems is a rapid rate of capital formation. In the work of Bakare (2011) asserted that capital formation influences the economic welfare of a country. It helps in meeting all the requirements of an increasing population in developing economy. It leads to the proper exploitation of natural resources and the establishment of different types of industries, levels of increase and the varied wants of the people are satisfied. They consume a variety of commodities, their standard of living rises and their economic welfare increases. Capital formation raises the level of national income. Bakare, (2011) using cointegration to ascertain the relationship between capital formation and economic growth, his result showed that capital formation has a direct relationship with economic growth of Nigeria. Ainabor (2014) examined the impact of capital formation on the growth of Nigeria using time series data from 1960 to 2010. The paper applied Harrod –Domar model to Nigerian growth model and tested if it has a significant relationship with Nigerian economy. The paper utilized secondary data and the paper explored various econometrics and/or statistical analytical (Eview 4.0) method to examine the relationship between capital formation and economic growth. The paper tested the stationarity, OLS, cointegration of Nigeria’s time series data and used an error correction mechanism to determine the long-run relationship among the variables examined. The results of the findings supported the Harrod-Domar model which proved that the growth rate of national income was directly related to saving ratio and capital formation (i.e. the more an economy is able to save-and invest-out of given GNP, the greater will be the growth of that GDP). Donwa and Odia (2009), considered the impact of globalization on the gross fixed capital formation in Nigeria from 1980 to 2006.Using the ordinary least square, it was found that globalization proxy by openness was negatively and insignificantly related to gross fixed capital formation. In other words, globalization has not helped in assisting fixed capital formation. Foreign Direct Investment and Gross Domestic Product were positive and significant while exchange rate had a negative impact on GFCF. Interest rate had positive and insignificant relationship with GFCF. Suggestions on how Nigerian could benefit from globalization and improve on her gross fixed capital formation were proffered. Ugwuegbe and Uruakpa, (2013) investigated the impact of capital formation on economic growth in Nigeria.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
It is important to ascertain that the objective of this study was to ascertain the impact of capital formation on economic growth in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the impact of capital formation on economic growth in Nigeria
Summary
This study was on the impact of capital formation on economic growth in Nigeria. Three objectives were raised which included; To examine the effect of capital formation on economic growth in Nigeria, to determine if capital formation has any significant impact on economic growth in Nigeria and to determine the direction of significant causal relationship between capital formation and economic growth in Nigeria. A total of 77 responses were received and validated from where the enrolled participants all respondents were drawn from CBN in Lagos state. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
The researchers noted that, if Nigeria economy will make a meaningful progress, there is need to increase capital formation in the domestic economy, encourage industrialization, promote agricultural output drastically and above all draft developmental document that addresses how the country will achieve sustainable high level of economic growth.
Recommendation
Policy formulators in Nigeria need to enact some investor-friendly policies that will encourage, promote and attract more capital inflows (Be it official or private inflows) and to provide a conducive and enabling environment for the gross fixed capital formation to thrive. There is need to play down on speculative businesses and to invest in the real sectors of the economy.
There is also the need to reduce the level of capital flight out of the country. Inflows should be tied to specific, relevant and purposeful projects. This will help to create employment opportunities in the long run. Prudence and proper accountability should be the watchword in the management of accruals from official capital inflows and transfers. Such monies are expected to be channelled into productive ventures by the governments in power and not for profligacy
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