THE IMPACT OF FOREIGN PRIVATE INVESTMENT (FPI) ON CAPITAL FORMATION IN NIGERIA, 1980-2004: AN EMPIRICAL ANALYSIS
THE IMPACT OF FOREIGN PRIVATE INVESTMENT (FPI) ON CAPITAL FORMATION IN NIGERIA, 1980-2004: AN EMPIRICAL ANALYSIS

Summary/Abstract: A number of possible determinants of capital formation is investigated using Nigerian data covering 1980- 2004 studied. Time-series estimates are obtained using an OLS methodology which included tests for stationarity and cointegration. Empirical results showed a positive influence of cumulative foreign private investment (CFPI), index of energy consumption (INDEXEC) and total banking system credit to the domestic economy (BSTCr), and a negative influence of gross national savings (GNS), domestic inflation rate (INFR), maximum lending rate (MLR), foreign exchange rate EXCHR) and debt service ratio (DSR) on capital formation. We discovered that foreign exchange rate leads capital formation in Nigeria, followed by index of energy consumption and then, debt service ratio. The paper therefore recommends reduction in exchange rate distortions/misalignment; increase in exports of locally manufactured goods and raw materials to raise value of local currency; earn more foreign exchange and allow market forces to fix exchange rate; increase in energy supply by providing constant electricity and infrastructure to boost industrial energy consumption; and continuous minimisation of foreign debts to reduce amount of national income used for debt servicing.

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