Estimation of Regression Coefficients in the Presence of Multicollinearity

This study focused on the contribution of agriculture, industry and services to the overall GDP in Nigeria over a period of 1960-2011. Data was extracted from the Central Bank of Nigeria website for the analysis. Multiple regression analysis was used and variance inflation factor (VIF) was used as a tool for detecting the presence of multicollinearity. After various transformations were carried out, the result of the differenced log-transformation of the components shows that the VIF has reduced below the rule of thumb of 10.It further revealed that agriculture, industry and services were positively related to GDP during this period in Nigeria. The result also showed that industry had the highest contribution which is an indication that industry is the key contributor to the Nigeria economy. The result also revealed that agriculture, industry and services played significant roles in the growth and development of Nigeria economy. This study therefore suggests that foreign investors should be encouraged to invest in the allied and mineral industries.