Gross Capital Formation and Economic Growth in Nigeria: Evidence from the Autoregressive Distributed Lag (ARDL) Approach
Tongpan Godwill Gu’ar *
Department of General Studies, School of Legal and General Studies, Plateau State Polytechnic, Barkin-Ladi, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
Gross capital formation is considered one of the most important contributors to economic growth through capital accumulation, increased productivity, and technological progress. In Nigeria, although various policies and development programmes have been put in place to attract investments, the impact of gross capital formation on sustained economic growth is inconclusive. This study used the Autoregressive Distributed Lag (ARDL) model to analyse the impact of gross capital formation on economic growth in Nigeria for the period 2004–2025, using data sourced from Central Bank Statistical Bulletin and World Development Indicators. The results showed that in the short run, the effect of gross capital formation on the growth of the economy was negative but statistically insignificant in the contemporaneous period and positive but statistically insignificant in the lagged period, meaning that investment has not significantly contributed to the improvement of economic growth. The literacy rate had a negative contemporaneous effect on economic growth, although it was not statistically significant, but a positive and statistically significant lagged effect, indicating that the economic returns from human capital formation are delayed. The study concludes that the accumulation of capital alone has not translated into economic growth in Nigeria that is sustained, suggesting that greater investment efficiency, improvements in institutional quality, alongside human-capital policies, are needed to improve the impact of capital formation on economic growth. The study recommends that the Federal Ministry of Finance, the Federal Ministry of Budget and Economic Planning, the Central Bank of Nigeria, and the Nigerian Investment Promotion Commission should enhance policies that encourage productive investment, supported by improved infrastructure, efficient allocation of capital, and an enabling investment environment. It also urges the Federal Ministry of Education, National Universities Commission, National Board for Technical Education and the National Commission for Colleges of Education to boost technical, vocational, digital and innovation-based education to build up labour productivity and maximise the long-term growth effects of manpower development.
Keywords: ARDL, economic growth, gross capital formation, literacy rate, Nigeria