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Capital Formation and Performance of the Nigerian Economy

Islam Oshone Mustafa, Stephen Ebhodaghe Ughulu

Abstract

This study examined the effect of capital formation on the performance of the Nigerian economy over the period 1995 to 2025. The specific objectives were to determine the effect of Gross Fixed Capital Formation, Total Savings, and Human Capital Formation on Real Gross Domestic Product in Nigeria. The study employed an ex post facto research design using annual time series data obtained from the Central Bank of Nigeria and World Bank database, with a sample size of thirty-one observations. Data were analyzed using descriptive statistics, Augmented Dickey Fuller unit root test, Engle Granger cointegration test, and Vector Autoregression model. The results showed that Gross Fixed Capital Formation and Total Savings have negative and statistically significant effects on Real Gross Domestic Product, while Human Capital Formation has a positive and statistically significant effect on economic growth. The study also found that no long run relationship exists among the variables, indicating that short run dynamics dominate their interactions. The study concludes that the effectiveness of capital formation in Nigeria depends largely on the efficiency of resource utilization rather than the volume of investment. It recommends improved investment efficiency, better financial intermediation, and increased investment in human capital development to enhance sustainable economic growth.

Keywords

Capital FormationGross Fixed Capital FormationTotal SavingsHuman Capital FormationEconomic GrowthReal Gross Domestic ProductVector AutoregressionNigeria.

References

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