Savings, Investment and Economic Growth in Nigeria: An Empirical Analysis

This paper empirically examines the relationship among savings, investment and growth rate using cointegration and Error Correction Model (ECM) approach. Specifically, savings and investment models are estimated. The series are integrated of order two, i.e., [I(2)]. Long-run relationship among variables is established using Johansen maximum likelihood methods. The econometric analysis shows that investment-GDP ratio lagged by one year, real growth rate of GDP lagged by one year, gross domestic savings lagged by one year and cost of capital lagged by two years are significant determinants of investment. Similarly, real growth rate of GDP, gross domestic investment-GDP ratio lagged by one year and economic liberalization are significant determinants of savings. A robust relationship among savings, investment and growth is identified. The study suggests that given the prevalence of low saving rate and invariably low investment rate, there is the need to adopt a proactive measure that will enhance savings and investment capacity in Nigeria, which in turn, will impact growth significantly. This can be achieved through a policy framework that will ensure an investor-friendly environment and develop human capacity and technology.