ANALYSIS OF NIGERIA GROSS DOMESTIC PRODUCT USING PRINCIPAL COMPONENT ANALYSIS

Abstract

Nigeria is classified as a mixed economy emerging market, and has already reached middle income status according to the World Bank, with its abundant supply of natural resource, well developed financial, legal, communications, transport sectors and stock exchange which is the second largest in Africa. The main purpose of this research is to build a model that can capture the best variables that predict the Gross Domestic Product (GDP) of Nigeria. Correlation matrix was used to know the degree of relationship that exists between the pairs of predictors of GDP. The principal component analysis was employed to reduce the multidimensional data. Scree plot was used to determine the spread of the trend of the components and bi plot was used to determine the degree of closeness of Agriculture, oil Export, External Reserves, Exchange Rate, Transportation, Education, and Communication. There is a strong relationship between pairs of Agriculture, oil Export, External Reserves, Exchange Rate, Transportation, Education, and Communication. The proportion of variance accounted for by the first component is 92%. This implied that only component 1 is sufficient to explain GDP. The Scree plot showed that the best component is component 1. The bi plot showed that Agriculture, oil Export, External.Reserves, Exchange.Rate, Transportation, Education, and Communication are closely related and stand as good predictors of GDP.