Using a macroeconomic approach, this work examined the role of
foreign private investment (FPI) and capital formation in the
economic growth of Nigeria.In order to achieve our objectives, we
estimated the model of capital formation and economic growth for
Nigeria. We found, that foreign private investment has a negative
impact on capital formation in Nigeria. We also found that both
foreign private investment and capital formation, in addition to
other factors, significantly determine economic growth in
Nigeria.Again we found that the long run impact of capital
formation and foreign private investment on economic growth is
larger than their short run impact. There is thus a long run
equilibrium relationship among the variables as the error
correction term is significant, but the speed of adjustment is
small in both models. We estimated two stage least squares
counterpart of the models in order to check for endogeneity
bias.Our findings therefore have some policy implications: First,
policies that enhance capital formation and FPI inflow do increase
economic growth. Second, banking systems credit to domestic economy
enhances capital formation and economic growth.
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