Inflation and Economic Growth in Nigeria

International Journal of Research and Scientific Innovation (IJRSI) | Volume VI, Issue VIII, August 2019 | ISSN 2321–2705

Inflation and Economic Growth in Nigeria

Binuyo, Babatunde, Igwe, Ajanwachukwu and Ebere, Chidinma

Department of Economics, Veronica Adeleke School of Social Sciences, Babcock University, Ilisan Remo, Ogun State, Nigeria

Abstract :-The study examined “ inflation and economic growth in Nigeria”. Time series data from 1981-2017 was used. The study used real gross domestic product as dependent variable while interest rate (INT), inflation rate (INF), consumer price index(CPI), foreign exchange rate(EXCH) were used as independent variables. Unit root test was carried out using augmented dickey fuller and the result indicated that all the vairables were stationary at first difference. Thus, the vector Error correction method (VECM) was employed for this research to find the relationship between inflation and economic growth in Nigeria. The study observed that there was a negative relationship between interest rate and real gross domestic product, exchange rate has a negative relationship with real gross domestic product and finally, consumer price index has a positive relationship with real gross domestic product. The study therefore suggested that government should encourage the export promotion strategies in order to maintain a surplus balance of trade and also conducive enviornment, adequate security, effective fiscal and monetary, as well as infrastructural faclities should be provieded so that foreign investors will be attracted to invest in Nigeria.

Keywords:Consumer price index,exchange rate, economic growth, Inflation rate, Real domestic product.

I. INTRODUCTION

It is generally believed that price stability promote long-term economic growth, whereas high inflation is inimical to growth. Over the past few decades, the rate of inflation has been over two digits, and this rate is believed to be on a high side. When there is persistent rise in general price level, the currency losses purchasing power. When this happens, it hampers perception of foreign investors as they would shy away from investment opportunities in a country as this.
This term, Inflation as it is widely known is a general increase in prices and fall in the purchasing value of money. There are two parts to this definition. One affects the other simultaneously, and together they become a cause effect relationship. As fuel pump rises in a country or state, this affects a wide range of products and services in the economy. This in turn causes the average worker or employee to spend the same amount of money on little product or service compared to yesterday. So, to ensure the economy comes back to its optimal point of operation, the government tends to reduce inflation through a major monetary policy called the contractionary monetary policy. The principal benefit of low inflation is improved certainty and hence, the ability to plan. Meanwhile, the fact that increasing price level leads to; a fall in the standard of living, unpredictability of government policy actions and of macroeconomic relationships is no more an issue of dispute (Maku&Adelowokan, 2013)

Read More