THE IMPACT OF CAPITAL FORMATION ON THE GROWTH OF NIGERIAN ECONOMY (1981-2019)

Capital formation is one of the major determinants of economic growth. Literature is replete with the extent to which capital formation can engineer the growth of nations. There is a conventional perception that the most pertinent obstacle to economic growth is shortage of capital. This work analyses capital formation and its impact on the Nigerian economy. The study examined the effect of capital formation on the growth of Nigerian economy for the period under study. In doing this an empirical research was concluded using secondary time series data spanning from 1981 to 2019 a regression model was estimated and the key finding of this study suggest that capital formation has played a fundamental role in economic growth in Nigeria thus give credence to the Harrod-Domar Model which considers investment as a determinate of economic growth. The work goes further to analyse the determinants of capital formation in Nigeria as understanding these determinants is a crucial prerequisite in designing a number of policy interventions towards achieving economic growth. This is important because the level of impact of capital formation on economic growth depends on the intensity of its determinants. The result showed that the significant determinants of capital formation in Nigeria are the level of financial development (proxied by the market capitalization of the Nigerian Stock exchange) and gross domestic product (GDP). The work also makes some important policy recommendations.