Abstract
The study was motivated to examine factors that determine Nigerian capital formation. The objective was to test Jhingan’s propositions for sources of capital formation in Nigeria. Time series data were sourced from Central Bank of Nigeria (CBN) Statistical Bulletin. Nigerian Gross Fixed Capital Formation (GFCG/GDP) was modeled as the function of Broad Supply (M2/GDP), Credit to Private Sector (CPS/GDP), Gross National Savings (GNS/GDP), Commercial Banks Lending Rate, Exchange Rate (EXR), Inflation Rate (INFR), External Debt (EXTD/GDP), Public Expenditure (PEX/GDP), Government Revenue (GR/GDP), Terms of trade (TT/GDP) and Operating Surplus (OPS/GDP). Cointegration Test, Augmented Dickey Fuller Unit Root Test, Granger Causality Test and Vector Error Correction Model were used to test the dynamic relationship between the variables. Findings proved that M2/GDP, GNS/GDP, EXR, EXTD/GDP, TT/GDP have negative and insignificant effect on capital formation while CPS/GDP, LR, INFR, PEX/GDP, GR/GDP and OPS/GDP have positive and insignificant effect. The model summary revealed 86.0% explained variation and f-statistics 12.38458 probability of 0.000004. The study concludes that the variables have significant impact on Nigerian Gross Fixed Capital Formation and confirm the Jhingan’s proposition. It therefore recommend that the financial sector should be deepened, policies should be directed to discourage capital flight and government expenditure should be directed towards infrastructural development as against consumable goods to enhance capital formation in Nigeria.
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