The Effects of Inflation on Economic Growth in Nigeria

Abstract

The study investigated the effects of inflation on economic growth in Nigeria within the period 1990 to 2016. Secondary data for relevant variables were obtained from the CBN publications. The study adopted the use of unit root test, cointegration and VECM in estimating the data. The study found that inflation does not have significant effect on economic growth between 1990 and 2016 based on the significant level which was greater than 0.05. The result also shows that inflation is not significant in explaining the changes in economic growth between 1990 and 2016.The examination of their causal relationship also proved to be non-existence as their probability values are higher than the benchmark of 0.05. Meanwhile, a long run and short analysis was also conducted. The findings shows that the previous year's deviation from long run equilibrium is corrected at an adjustment sped of 6.7 %. On the other hand, the short run coefficient of inflation is 0.070590. This suggest that holding other variables constant, in the short run, a percent change in inflation will on the average lead to 0.07 percent increase in economic growth (EGR) in Nigeria. Meanwhile, changes in the dependent variable (EGR)were explained by 35% changes in the independent variable (INF). It is thus recommended that government should push for dynamic monetary policy that can mitigate against inflation, when it becomes inimical on the long run.Since there is a long run relationship between inflation and economic growth, the government should not be much concerned on the impact of inflation but rather push for inclusive growth policies that can result in all round growth.