Impact of inflation on economic growth: evidence from Nigeria

  • Received September 3, 2019;
    Accepted March 3, 2020;
    Published April 9, 2020
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  • Article Info
    Volume 17 2020, Issue #2, pp. 1-13
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This work is licensed under a Creative Commons Attribution 4.0 International License

In an attempt to examine the influence of inflation on the growth prospects of the Nigerian economy, the study employs the autoregressive distributed lag on the selected variables, i.e. real gross domestic product (GDP), inflation rate, interest rate, exchange rate, degree of economy`s openness, money supply, and government consumption expenditures for the period 1980–2018. The study findings indicate that inflation and real exchange rate exert a significant negative impact on economic growth, while interest rate and money supply indicate a positive and significant impact on economic growth. Other variables in the model depict no influence on the economic growth of Nigeria. The causality result shows the unidirectional relationships between interest rate, exchange rate, government consumption expenditures and gross domestic product. However, inflation and the degree of openness show no causal relationship with gross domestic product. As a result, the study recommends that a more pragmatic effort is needed by the monetary authorities to target the inflation vigorously to prevent its adverse effect by ensuring a tolerable rate that would stimulate the economic growth of Nigeria.

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    • Figure 1. Inflation trend in Nigeria
    • Figure 2. Cumulative sum (CUSUM) test
    • Table 1. Variables used and expected signs based on the theories
    • Table 2. Descriptive statistics
    • Table 3. Unit root test of ADF value
    • Table 4. Lag length selection
    • Table 5. ARDL result
    • Table 6. ARDL long-run (a) and short-run relationships (b)
    • Table 7. Causality result
    • Table 8. ARDL diagnostic estimations