INFLATION AND ECONOMIC GROWTH IN NIGERIA: AN ARDL BOUND TESTING APPROACH

Sophie Ezinne Onwubuariri, Sunday Idowu Oladeji, Rebecca Folake Bank-Ola

Abstract


Inflation has continued to pose severe challenges in Nigeria's economic growth and stakeholders have been on their toes to see that a stable economy is possible. This led the study to evaluate the impact of inflation on Nigeria's economic growth for the past four decades, beginning from 1980 to 2019. Inflation rate, interest rate, exchange rate and government expenditure were the independent variables, while the gross domestic product was the dependent variable. Annual time series secondary data covering the period 1980 to 2019 were obtained from the World Development Indicators (WDI) published by the World Bank. Data collected were analysed using the Autoregressive Distribution Lag (ARDL) model and the Error Correction Model (ECM). Results indicated that inflation has negatively affected economic growth over the years as it reduces competitiveness as well as lowering the purchasing power of money. The study concludes that while inflation and exchange rate negatively impact the Nigerian economy's growth, interest rate maintains a positive relationship. Government consumption proved to be an insignificant factor in the growth of the economy. The study suggested that measures be put in place by the CBN through the Monetary Policy Committee to ensure that the rate of inflation is reduced to the barest minimum.

Keywords


Inflation Rate, Gross Domestic Product, Economic Growth, Real Interest Rate, Auto-Regressive Distributed Lag (ARDL) Model.

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