ABSTRACT

The study investigated the effect of capital formation on economic growth in Nigeria. The data were collected from Central Bank of Nigeria Statistical Bulletin (2015). To examine the impact of capital formation, interest rate, inflationary rate and stock market capitalization on economic growth in Nigeria, the study employed ordinary least square method. The test for the properties of time series, Philip-perron test was used to determine the stationarity of the variables and it was discovered that gross fixed capital formation and economic growth are integrated of order zero (I(0), Johasen test was used to determine the order of integration while error correction model was employed to determine the acceleration of adjustment to equilibrium. The empirical findings suggest that capital formation has a negative and insignificant effect on economic growth in Nigeria for the period under investigation. Both Stock market capitalization and interest rate showed a positive effect on economic growth in Nigeria for the period under review, while inflationary rate shows a negative impact on economic growth in Nigeria. The result further showed a long run sustainable relationship between interest rate and capital formation on economic growth in Nigerian. Therefore, emphasis should be made on increasing the rate of interest as this will enhance growth and development in Nigerian economy. The Nigeria stock market should be deepened in more to enhance their contribution to the growth of the domestic economy.