Capital Formation: The role of capital formation in the development of a modern economy has long been recognized. Capital provides the impetus for effective and efficient combination of factors of production to ensure sustainable economic growth and development.
However, most of the growth in LDCs, such as Nigeria, in the 1970s was dept-led as these countries maintained persistent current account deficit and borrowed heavily from the international money and capital markets to finance payment gaps.
According to economist, one of the principal tricks of development necessary for any take-off was the mobilization of domestic and foreign savings in order to generate sufficient investment to accelerate economic growth. For instance, the Harrod-Domar growth model contends that the rate of growth of an economy is positively related to the national saving ratio and inversely related to the national capital output ratio. Similarly, Rostow (1985) noted that countries that were able to save 5% - 10% of Gross National Product (GNP) could grow at a faster rate than those that save less. The money and capital markets provide the mechanism for achieving the dual objective of saving and investment they offer multiple of financing windows to government and private sector investor with viable project ideas.
The world economy has witnessed three phases of international financing within the last two centuries (Gilpin, 1987). According to him, most of these funds were channeled to the developing countries and there were some reasonable improvement in the levels of economic development.
Further strategies were made by the developed countries to carter for the specific situations of the poorer nations. Among these strategies, Official Development Assistance (ODA) was seen as an important means to promote economic development. It consists of grants or loans by agencies of government or unilateral organization. Aids in the form of grants and concessional loans were generally acceptable because in many developing countries, domestic savings remain limited and public investment can only be sustained through capital injection from developed countries.
In general, the strong relationship between fixed capital formation shares of GDP and growth rates since World War II has led many writers such as De-Long and Summes (1991,1992), to conclude that the rate of capital formation in the form of equipment determines the growth rate of any country.
Also Read: Capital Formation and National Development
Capital Formation and National Development
Capital formation: Capital formation is not an end in itself but a means to an end, and it is otherwise called investment. Consequently, accumulated capital is supplied for financing projects. In Nigeria, capital formation has been taking place within the framework of the national economic plans. National economic plans,
CAPITAL FORMATION: Less developed countries (LCDS) are generally said to be characterized by several features including capital scarcity and lower industrial base when compared with the developed countries (DCS) of the world. Some economists such as Adam Smith, W.W. Rostow and W.A. Lewis have laid emphasis on capital formation as a major determinant of economic growth.
Also Read: A SURVEY OF NATION DEVELOPMENT PLANS
A SURVEY OF NATION DEVELOPMENT PLANS : Every responsible government owe the citizens the duty of enhancing their living standard. This can only be achieved through sound economic policies that is capable of engendering speed and consistent economic growth. The concept of National development plan goes beyond fiscal policies.
THREE BASIC COMPONENTS
Economic growth is usually refers to the quantitative increase in the total or per capital output of goods and services in an economy whereas development implies a positive change in the social, institutional and other structural relationships within which growth takes place.