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

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Project Topic:
THE OF CAPITAL FORMATION ON THE GROWTH OF NIGERIAN ECONOMY (1981-2019)

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE

1.2 STATEMENT OF PROBLEM

After the Nigerian civil war; massive reconstruction and public sector investments assumed the most viable option of rebuilding the economy and to guarantee an improved rate of economic growth and development. However, records of the past four decades have generated some concern over the slow pace of industrial and infrastructural development. Questions have been raised as to what should constitute the optimal size of government's capital outlays that are capable of turning around the economy. Overtime, the Nigerian nation has witnessed a tremendous increase in her revenue profile through oil . She has equally enjoyed cycles of oil boom with successive governments harnessing the resources of the nation to execute its budget. Ironically, there has been an increase too in her expenditure pattern overtime. Paradoxically, it does not appear as if the increase in capital expenditures has translated into increased capital formation and consequent economic growth and development. The above scenario is quite disturbing. It is far from being satisfactory and obviously point towards an ailing economy. In Nigeria, capital output is low resulting from the fact that capital income is low. More so, the marginal or average propensity to save is low, while the marginal or average propensity to consume is so high, this leads to attainment of economic development. For economic development to be achieved in Nigeria, then there should be increase of domestic saving from 4% to thereabout 12% in national income, expansion of market, investment in capital equipment, decrease in population rate, correcting of imbalance of payments, declining of debts, control of inflationary pressure, etc. These stated points are possible only and only if there is a rapid rate of capital formation in the country, that is, if smaller proportion of the community's current income or output is partly devoted to consumption and/or the other part is saved and/or invested in capital or industrial equipment. Thus this study is set to ascertain, the impact of capital formation on the growth of Nigerian economy.

1.3 OBJECTIVES OF THE STUDY

The major purpose of this study is to examine the impact of capital formation on growth of Nigerian economy. Other general objectives are as follows:

i)            To examine the role of capital formation on the growth of Nigerian economy.

ii)          To determine the impact of capital formation on growth of Nigerian economy for the period 1981-2019.

iii)        To determine the role of inflation in the economic growth of Nigeria.

iv)         To examine the direction and significance of interest rate on economic growth of Nigeria.

v)           To examine the relationship between capital formation and economic growth of Nigeria within 1981 and 2019.

vi)         To draw policy implications for capital formation from the empirical findings.

1.4 RESEARCH QUESTIONS

i)            What is the role of capital formation on the growth of Nigerian economy?

ii)          What is the impact of capital formation on growth of Nigerian economy for the period 1981-2019?

iii)        What is the role of inflation in the economic growth of Nigeria?

iv)         What is the direction and significance of interest rate on economic growth of Nigeria?

v)           What is the relationship between capital formation and economic growth of Nigeria within 1981 and 2019?

vi)         What are the policy implications for capital formation from the empirical findings?

1.5 RESEARCH HYPOTHESIS

H0: There is no significant relationship between capital formation and economic growth of Nigeria within 1981 and 2019.

H1: There is a significant relationship between capital formation and economic growth of Nigeria within 1981 and 2019.

1.6 SIGNIFICANCE OF THE STUDY

This study will be of significance to the government as a score sheet to evaluate the public sector reforms and to know how effective the policy has been over the years and provide further tools for policy making by government policy makers and others alike. It will also be of significance to the business owners on how government's policy affects their businesses.

Furthermore, there is need to provide a reference document for further researchers and impact of capital formation on the growth of economy conducted by other Nigerians. This research work will go a long way to increase the availability of literature in the field of economics. Finally, the study is of immense benefit to policy makers, investors, financial manager's lecturers and the general public.

1.7SCOPE OF THE STUDY 

The study is based on the study on the impact of capital formation on the growth of Nigerian economy, (1981-2019).

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 DEFINITION OF TERMS

Capital Formation: Capital formation is a concept used in macro-economics, national accounts and financial economics. It is a specific statistical concept used in national accounts , econometrics and macroeconomics (Wikipedia Encyclopaedia). In that sense, it refers to a measure of the net additions to the (physical) capital stock of a country (or an economic sector) in an accounting interval, or, a measure of the amount by which the total physical capital stock increased during an accounting period.

Economic Growth: Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

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