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Given the likely simultaneity between FPI, Capital Formation and Growth, this work studies the relationship
between foreign private investment, capital formation and economic growth in Nigeria using the two-stage least
squares (2SLS) method of estimation. The study finds that the long run impact of capital formation and foreign
private investment on economic growth is larger than their short-run impact. There is thus, a long-run
equilibrium relationship among the variables as the error correction term is significant, but the speed of
adjustment is small in both models. The two stage least squares estimates are very close to the OLS estimates
suggesting that OLS estimates are consistent and unbiased. Hence, endogeneity was not a problem in the
estimated models. There is therefore no simultaneity between GDP growth and capital formation model. These
findings therefore have some policy implications as discussed in the work.
