A Theoretical Analysis of Capital Formation and Growth in Nigeria

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

Far East Journal of Psychology and Business, 2011, vol. 3 No 1 Paper 2 April, issue 2, 11-24

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.

Keywords: Capital formation; Economic growth; Harrod-Domar model; savings and public domestic investment (search for similar items in EconPapers)
JEL-codes: M1 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:fej:articl:v:3a:y:2011:i:2:p:11-24

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