The role of equipment investment in Nigeria's growth process

Abstract

This paper examines empirically the role of equipment investment in Nigeria's growth process. A growth accounting equation was utilized to analysed the contribution of private capital stock to growth. A Granger-causality test was also employed to explore the relationship between components of domestic fixed investment, productivity growth, labour force growth and economic growth. In addition, regression analysis was employed to complement the other methods. The first conclusion is that for sustainable growth, private capital stock growth need to rise to a level of 9 percent, for fixed investment- GDP ratio to oncrease by 18 percent. In the second approach, the result do support the view that there is a strong connection between equipment investment and economic growth, there was causal links between equipment investment and economic growth, there was causal links between equipment investment and productivity growth; and GDP growth and labour force growth in one direction as well. The third approach reveals that equipment investment and other components of fixed investment are positively related to growth, however, aggregate fixed investment has a negative impact on output growth. This unexpected result was due to high GDP volatility in Nigeria. The general conclusion is that equipment investment, as well as other components of investments are necessary for growth process in Nigeria. Therefore, government should increase budgetary allocations to equipment production sectors and increase foreign exchange allocation for importation of fixed assets or capital.