ATTENTION:
BEFORE YOU READ THE CHAPTER ONE OF THE
PROJECT TOPIC BELOW, PLEASE READ THE INFORMATION BELOW.THANK YOU!
INFORMATION:
YOU CAN GET THE COMPLETE PROJECT OF THE
TOPIC BELOW. THE FULL PROJECT COSTS N5,000 ONLY. THE FULL INFORMATION ON HOW TO
PAY AND GET THE COMPLETE PROJECT IS AT THE BOTTOM OF THIS PAGE. OR YOU CAN
CALL: 08068231953, 08168759420
The Impact
Of Capital Formation On Economic Growth In Nigeria
ABSTRACT
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 work studies the extent to which
capital formation effects economic growth in Nigeria. Making use of the
classical linear regression model (CLRM) through the ordinary least square
(OLS) method, the impact of capital formation on the Nigeria’s economic growth
was examined. The result showed that capital formation has a significant impact
on 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.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Capital information refers to the proportion
of present income saved and invested in order to augment future output and
income. It usually results from acquisition of new factory along with
machinery, equipment and all productive capital goods. Capital formation is
equivalent to an increase in physical capital stock of a nation with investment
in social and economic infrastructure.
Capital
naturally plays an important role in the economic growth and development
process. It (capital) has always been seen as potential growth enhancing
player. Capital formation determines the national capacity to produce, which in
turn, affects economic growth. Deficiency of capital has been cited as the most
serious constraint to sustainable economic growth. It is therefore not
surprising that the analysis of capital formation has become one of the central
issues in empirical macroeconomics. One popular theory in the 1970s, for
example, was, that of the "Big Push" which suggested that countries
needed to jump from one stage of development to another through a virtuous
cycle in which large investments in infrastructure and education coupled with
private investment would move the economy to a more productive stage, breaking
free from economic paradigms appropriate to a lower productivity stage. Growth
models like the ones developed by Romer (1986) and Lucas (1988) predict that
increased capital accumulation can result in a permanent increase in growth
rates.
The
relationship between capital formation of the nation and economic growth has
been documented in a number of empirical investigations. The result which has
been found in several analyses is that causality exists between capital
accumulation and economic growth.
Nevertheless,
understanding the determinants of the capital formation is a crucial
prerequisite in designing a number of policy interventions towards achieving
economic growth. The process of capital formation is cumulative and
self-feeding. It involves three inter-related conditions; (a) the existence of
real savings and rise in them; (b) the existence of credit and financial
institutions to mobilise savings and to direct them to desired channels; and
(c) to use these savings for investment in capital goods (Jhingan, 2006).
Therefore, we can understand that savings is the major determinant of capital
formation. It is widely believed that an increase in the proportion of national
income devoted to capital formation is only one avenue for growth. Therefore
people are encouraged to save more than to consume more, because a growing
economy requires a constant flow of fund for investment in other to assure a
supply of capital goods adequate for production of consumer goods and
replacement of obsolete equipment.
However,
government restrictions imposed on financial institutions such as interest rate
ceiling, high reserve requirement, etc, restrain the process of financial
intermediation and consequently, impede economic growth. Greenwood and
Jovanovich (1990), stressed the role of financial intermediaries in pooling
funds and acquiring information that enable them to allocate capital to its
highest use-value, thereby, raising the average return to capital.
1.2 STATEMENT OF PROBLEM
Capital
formation is a concept used in macro-economics, national accounts and financial
economics. It can be defined in three ways:
Ø It is a
specific statistical concept used in national accounts statistics, econometrics
and macroeconomics (Wikipedia Encyclopaedia). In that sense, it refers to a
measure of thenet 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.
Ø It is used
also in economic theory, as a modern general term for capital accumulation,
referring to the total "stock of capital" that has been formed, or to
the growth of this total capital stock (Wikipedia Encyclopaedia).
Ø In a much
broader or vaguer sense, the term "capital formation" has in more
recent times been used in financial economics to refer to savings drives,
setting up financial institutions, fiscal measures, public borrowing,
development of capital markets, privatization of financial institutions,
development of secondary financial markets(Wikipedia Encyclopaedia). In this
usage, it refers to any method for increasing the amount of capital owned or
under one's control or any method in utilising or mobilizing capital resources
for investment purposes. Thus, capital could be "formed" in the sense
of "being brought together for investment purposes" in many different
ways. This broadened meaning is not related to the statistical measurement
concept nor to the classical understanding of the concept in economic theory.
Economic
growth, on the other hand, is the increase of per capita gross domestic
product(GDP) or other measure of aggregate income. It is often measured as
the rate of change in real GDP. Economic
growth refers only to the quantity of goods and services produced. Economists
draw a distinction between short-term economic stabilization and long-term
economic growth. The topic of economic growth is primarily concerned with the
long run. The short-run variation of economic growth is termed the business
cycle.
The long-run
path of economic growth is one of the central questions of economics; despite
some problems of measurement, an increase in GDP of a country is generally
taken as an increase in the standard of living of its inhabitants (Snowdon, B.
And Vane, H., 2005). Over long periods of time, even small rates of annual
growth can have large effects through compounding. A growth rate of 2.5% per
annum will lead to a doubling of GDP within 29 years, whilst a growth rate of
8% per annum (experienced by some Four Asian Tigers) will lead to a doubling of
GDP within 10 years. This exponential characteristic can exacerbate differences
across nations (Miles D. and Scott A., 2005).
Capital has
always been seen as growth enhancing player. There has been a problem of
vicious circle of poverty that tend to perpetuate the low level of development
in LDCs and it stems from the fact that there is low level of productivity in
LDCs due to deficiency of capital. The classical economists who were interested
in the development problems of their time specified capital as one of the
crucial variables in the development process. They specified that high
productivity could be achieved only if more tools and machinery were made
available for production. Thus Nurske (1951), states that the vicious circle of
poverty in underdeveloped countries can be broken through capital formation.
Also Richard Lipsey (1979), on the other hand, recognised capital as one of the
factors affecting development. He states that “as long as a society has
unexploited investment opportunities, productive capacity can be increased by
increasing the stock of capital”.
Over the
years, the growth rate of capital formation in Nigeria has not been
satisfactory. It has always been very low and often negative. Capital formation
as a percentage of GDP has also been very low. This brings about capacity
under-utilization as resources (human and material) will not be adequately
mobilized to bring about substantial economic growth. In the drive towards
rapid economic growth and the Nigerian vision of being one of the twenty
biggest economies in the world come 2020, expert opinion is that the economy
should be growing at the rate of at least 15 percent per annum (Soludo C. C.,
2010). Such growth can only be possible if there is continuous increase in the
capital stock of the nation to be brought about by massive public and private
investment in the country.
The table
below and the charts that follow is a summary of the performances of output
(represented by the GDP at current prices) and capital formation (represented
by Gross Fixed Capital Formation) in Nigeria for the periods under study.
YEAR
GDP at
Current Prices (=N= Million)
Gross Fixed
Capital Formation at Current prices (=N= Million)
Cap.
Formation as a Percentage of GDP
(%)
GDP Growth
rate
Capital
Formation growth rate
1979
41974.7
13329.58
31.75622
-
-
1980
49632.3
15237.8
30.70138
0.182434
0.143157
1981
47619.7
18220.59
38.26271
-0.04055
0.195749
1982
49069.3
17145.82
34.94205
0.030441
-0.05899
1983
53107.4
13335.33
25.11012
0.082294
-0.22224
1984
59622.5
9149.76
15.34615
0.122678
-0.31387
1985
67908.6
8799.48
12.95783
0.138976
-0.03828
1986
69147
11351.46
16.41642
0.018236
0.290015
1987
105222.8
15228.58
14.4727
0.521726
0.341553
1988
139085.3
17562.21
12.62693
0.321817
0.15324
1989
216797.5
26825.51
12.37353
0.558738
0.527456
1990
267550
40121.31
14.99582
0.234101
0.49564
HOW TO GET THE FULL PROJECT WORK
PLEASE, print the following instructions and information if you
will like to order/buy our complete written material(s).
HOW TO RECEIVE PROJECT MATERIAL(S)
After paying the appropriate amount (#5,000) into our bank
Account below, send the following information to
08068231953 or 08168759420
(1) Your project topics
(2) Email Address
(3) Payment Name
(4) Teller Number
We will send your material(s) after we receive bank alert
BANK ACCOUNTS
Account Name: AMUTAH DANIEL CHUKWUDI
Account Number: 0046579864
Bank: GTBank.
OR
Account Name: AMUTAH DANIEL CHUKWUDI
Account Number: 2023350498
Bank: UBA.
FOR MORE INFORMATION, CALL:
08068231953 or 08168759420
AFFILIATE LINKS:
myeasyproject.com.ng
easyprojectmaterials.com
easyprojectmaterials.net.ng
easyprojectsmaterials.net.ng
easyprojectsmaterial.net.ng
easyprojectmaterial.net.ng
projectmaterials.com.ng
googleprojectsng.blogspot.com
myprojectsng.blogspot.com.ng
https://projectmaterialsng.blogspot.com.ng/
Comments
Post a Comment