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A Theoretical Analysis of Capital Formation and Growth in Nigeria

Author

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  • Bakare A.S

    (Department of Economics Adekunle Ajasin University P.M.B 001, Akungba-Akoko,Ondo State,Nigeria)

Abstract

Our focus in this study is capital formation and growth. The study applied Harrod –Domar model to Nigerian growth model and tested if it can work in Nigeria. The ordinary least square multiple regression analytical method was used to examine the relationship between capital formation and economic growth. The study tested the stationarity and co integration of Nigeria’s time series data and used an error correction mechanism to determine the long-run relationship among the variables examined. The paper reviewed the literature and found that Harrod-Domar model has scarcely been used to test the relationship between capital formation and economic growth. The empirical study found that the data were stationary and co integrated and showed that there is a significant relationship between capital formation and economic growth in Nigeria. The results supported the Harrod-Domar model which proved that the growth rate of national income will directly or positively be 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). The econometric results suggested the need for the government to continue to encourage savings, create conducive investment climate and improve the infrastructural base of the economy to boost capital formation and promote sustainable growth.

Suggested Citation

  • Bakare A.S, 2011. "A Theoretical Analysis of Capital Formation and Growth in Nigeria," Far East Journal of Psychology and Business, Far East Research Centre, vol. 3(2), pages 11-24, April.
  • Handle: RePEc:fej:articl:v:3a:y:2011:i:2:p:11-24
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    References listed on IDEAS

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    1. Ben-David, Dan, 1998. "Convergence clubs and subsistence economies," Journal of Development Economics, Elsevier, vol. 55(1), pages 155-171, February.
    2. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
    3. Khan, Mohsin S. & Reinhart, Carmen M., 1990. "Private investment and economic growth in developing countries," World Development, Elsevier, vol. 18(1), pages 19-27, January.
    4. Mr. Dhaneshwar Ghura, 1997. "Private Investment and Endogenous Growth: Evidence From Cameroon," IMF Working Papers 1997/165, International Monetary Fund.
    5. Mr. Christian H. Beddies, 1999. "Investment, Capital Accumulation, and Growth: Some Evidence from The Gambia 1964–98," IMF Working Papers 1999/117, International Monetary Fund.
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    Cited by:

    1. Bhasela Yalezo & Bokana G K, 2018. "Determinants of Eastern Cape Gross Fixed Capital Formation and Its Impact on the South African Economic Performance," Journal of Economics and Behavioral Studies, AMH International, vol. 10(4), pages 32-44.
    2. Mirajul Haq & Syed Kafait Hussain Naqvi & Muhammad Luqman, 2016. "Is the Value Addition in Services and Manufacturing Complementary? Empirical Evidence from SAARC," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 21(2), pages 31-52, July-Dec.
    3. Fauzi HUSSIN & Norazrul Mat ROS & Mohd Saifoul Zamzuri NOOR, 2013. "Determinants of Economic Growth in Malaysia 1970-2010," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(9), pages 1140-1151, September.

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    More about this item

    Keywords

    Capital formation; Economic growth; Harrod-Domar model; savings and public domestic investment;
    All these keywords.

    JEL classification:

    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration

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