Savings, Gross Capital Formation and Economic Growth Nexus in Nigeria (1975-2008)

Abstract

This paper investigated the relationship among savings, gross capital formation and economic growth in the Nigeria economy, between 1975 and 2008. The study adopted co-integration and vector error correction model VECM as the estimating technique with special reference to VAR causality test. The result of unit root i.e. stationary test showed that the gross domestic product GDP which is a proxy for growth, savings which is a proxy for gross national savings GNS are both integrated of order two i.e. 1 (2) while capital formation which gross capital formation GCF served as its proxy is integrated of order 1 (1) The findings revealed the existence of long run relationship among the three variables as shown from the co-integration regressions which were characterized by high R square, positive coefficient from all parameter estimates and significant of F values from all the three equations. The vector error correction model, apart from corroborating the strong linkage among the three variables, also showed that GDP has stronger influence on both GNS and GCF than the influence of GNS and GCF have on GDP .Also causality test confirmed the existence of the symbiotic relationship among them since GDP and GCF, GDP and GNS, and GNS and GCF all exhibit bidirectional causality. If the findings of this research work are transformed into policy implementation i.e. proper harmonization of policies on economic variables, development of the real sector of economy, acceleration of the growth of capital formation, grass root mobilization of savings from the surplus sector to deficit sector, it will lead to a sustained long run economic growth.