The Role of Regulatory Reforms in Enhancing Capital Formation: Evidence from Nigeria’s Ease of Doing Business

Abstract

The study seeks to examine whether regulatory reforms impact capital formation in Nigeria. Regulatory reforms have featured prominently in development programs and policies of developing economies over time as government seek quick fix to improving investment climate and capital accumulation. Regulatory reforms that Nigeria has experienced overtime appear not to have been effective as investment has continued to be weak and volatile over time. This raises question on how regulatory reforms translate to improve investment climate thereby impacting capital accumulation in the country. The study therefore seeks to establish both short- run and long- run effects of regulatory reforms on capital formation using ARDL estimator for period 1991 to 2024. The empirical results confirm long- run relationship among variables studied and indicate that ease of doing business significantly affect capital formation in Nigeria in long-run. On the contrary, results on short- run relationship between regulatory reforms and capital formation does not indicate significant relationship. The negative and statistically significant error correction term indicates that about 52.5 percent of short run deviation from long run equilibrium is corrected yearly. Fiscal variables such as inflation are also found to have important role to play in capital formation. The study concludes that regulatory reforms influence capital formation through long- run institutional effect and not short- run effect. Continuous improvement on regulatory efficiency as well as development in the financial sector reforms is highly recommended.