Determinants of Capital Formation in Nigeria

Dickson Amoruwa Mejebi, Sunday Nosa Ugbogbo and Stanley Otakho Iyoha
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Dickson Amoruwa Mejebi: Department of Accounting, Faculty of Social and Management Sciences, Benson Idahosa University, Benin City, Edo State.
Sunday Nosa Ugbogbo: Department of Accounting, Faculty of Social and Management Sciences, Benson Idahosa University, Benin City, Edo State.
Stanley Otakho Iyoha: Department of Accounting, Faculty of Management Sciences, University of Benin, Benin City, Edo State.

International Journal of Research and Innovation in Social Science, 2023, vol. 7, issue 3, 1475-1488

Abstract: The study investigated the determinants of capital formation in Nigeria. For the purpose of analysis, the unit root test was done by using the Augmented Dickey Fuller methodology (ADF) and Philip Peron while f-bound test and ARDL models were used to determine the long and short-run relationship respectively. The time series data gathered for the four variables were from World Bank development indicator from 1981 to 2019. The results from the stationarity test showed that not all the variables were stationary at level so it enabled the use of f-Bound test (long Run) and Autoregressive Distributed Lag Model (short- run) to long- run analysis. The coefficient of GNI as a percentage of GDP implies that a unit change in GNI led to about increase in capital formation during the period under review. This therefore conforms to apriori expectation of a positive relationship between Gross national Income and capital formation in an economy. Also, the coefficient of GNS as a percentage of GDP implies that a unit change in GNS led to an increase in capital formation during the period under review. Therefore, this conforms to apriori expectation of a positive relationship between Gross national Savings and capital formation in an economy. The coefficient of FDI as a percentage of GDP implies that a unit change in FDI led to a decline in capital formation during the period under review. This therefore failed to conform to apriori expectation of a positive relationship between foreign direct investment and capital formation in an economy. Furthermore, the coefficient of export Earnings as a percentage of GDP implies that a unit change in export earnings led to a decline in capital formation during the period under review. This therefore failed to conform to apriori expectation of a positive relationship between Export Earnings and capital formation in an economy. Based on these findings, the study recommends amongst others that; there should be the encouragement of savings culture and creation of a conducive environment for investment to thrive. Also, the government should not only find means of attracting foreign investment but also ensure that these funds drive capital formation both in the short-run and long-run.

Date: 2023
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