FACULTY OF SOIAL SCIENCE

The study aimed to critically assess the relationship between capital formation and economic development in Nigeria and potential avenues for leveraging capital formation to achieve long term and inclusive economic development, focusing on the period from 1991 to 2024. Specifically, the study examined if capital formation and other macroeconomic variables such as foreign direct investment, lending rate and trade openness determine economic growth in Nigeria. The study conducted a descriptive statistic, correlation analysis, the unit root test using the Augmented Dicky-fuller test to check for stationarity of the variables, the co-integration analysis using the bounds test, to check if there is a long run relationship between the variable and the ARDL-ECM approach to analyze the data for both the short run and long run. The findings showed that all variables employed are co-integrated in the long run and thus, have a long-term relationship. It was found that capital formation has a significant impact on economic growth in the short run but dos not have a significant impact in the long run, FDI and trade openness both have a positive and significant impact on economic growth rate. However, lending rate has no impact on economic growth rate in Nigeria during the specified period. The study therefore recommends that that the government should ensure that capital formation initiatives are sustainable and efficient; focusing on long-term benefits, introduce policies to increase the level of economic development in the country such as increasing the level of infrastructure and policies to further improve trade by increasing the productive base of the country to increase exports and limiting trade restrictions.