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This work studied the relationship between foreign private investment (FPI), capital formation and eco-
nomic growth. Given the likely simultaneity between FPI, capital formation and growth, we used the
two-stage least squares (2SLS) method of estimation to examine the nexus between these variables using
Nigerian data. We found that foreign private investment has a negative impact on capital formation in
Nigeria. We also found that both foreign private investment and capital formation, in addition to other
factors, significantly determine economic growth in Nigeria. The study finds that the long-run impact of
capital formation, and foreign private investment on economic growth is larger than their short-run im-
pact. 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 2SLS 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.
