Impact of Inflation on Economic Growth in Nigeria: 1981-2016

Abstract

The study examines the impact of inflation on economic growth in Nigeria, using annual time series data from 1981-2016. A review of literature shows that inflation can either have positive or negative effects on economic growth in Nigeria. The Augmented Dickey Fuller (ADF) and Phillip Peron (PP) technique were employed to run the unit root test and the results shows some variables are stationary at level while others at their first difference. The Auto regressive distributive lag (ARDL) bound test is adapted to test for co integration and error correction model. From the results generated from ordinary least square (OLS) shows that there exist a negative and insignificant relationship between inflation and economic growth. Exchange rate has a positive and significant effect on real GDP at 1% level of significant. Interest rate also has positive and significant effects on real GDP at 1% level of significant. This study, recommend that, the government of Nigeria should design sound and productive macroeconomic policies to address factors that drive inflation high and to encourages local producers with the necessary facilities to boost production and supply of goods. This will help in reducing demand pull inflation and accelerate economic growth in Nigeria.