Abstract:

Given the low contribution of manufacturing sector to the gross domestic product (GDP) as an aftermath of low capital formation, this study examines the extent to which the performance of the manufacturing sector will be enhanced through capital formation in Nigeria. The study engages secondary data sourced from the World Development Indicators (WDI) for the period of 36 years (1981 to 2017). The study engages the Johansen co-integration approach to examine the long-run relationship between capital formation and manufacturing output in Nigeria, and findings based on co-integration approach shows that there is a long-run positive relationship between Manufacturing Sector Output as the dependent variable and Gross Capital Formation, Bank Credit to Manufacturing Sector and Foreign Direct Investment as independent variables. However, a negative relationship was observed between Manufacturing Sector Output and Exchange rate. Therefore, the study recommends that Nigeria government should encourage capital formation via commercial banks to reduce the interest rate on loans and advances that will encourage more investment in manufacturing sector targeted at long time benefits rather than short time paybacks.