Macroeconomic Variables and Economic Growth in Nigeria

ABSTRACT

This study examines the relationship between macroeconomic variables and economic growth in Nigeria. This was embarked upon against the background that Macroeconomic variables are important instruments of economic management in Nigeria that will accelerate economic growth in the long run. Our time series data sourced from Central Bank of Nigeria (CBN) statistical bulletin on real interest rate, inflation rate, exchange rate, trade openness, money supply and changes in RGDP from 1981 to 2013, were analyzed. Following a detailed statistical and econometric analysis, the findings reveal that macroeconomic variables considered have significant mixed effects on economic growth in Nigeria in the short and long run period. Interest rate, inflation rate, exchange rate and broad money supply have significant positive effect on economic growth in the short run period. While trade openness has significant negative effect on economic growth in the short run. In the long run period, interest rate, trade openness and broad money supply have a non significant positive effect on economic growth during the period under review. While inflation rate and exchange rate have significant negative effect on economic growth of Nigeria during this period under review. Furthermore, our empirical result reveals that causality runs from economic growth to real interest rate and trade openness and not the other way. Finally, causality runs from money supply to economic growth in Nigeria during the period under review. We therefore conclude and recommend that that the negative performance of the economy has been attributed to some factors particularly; government large fiscal deficit. To this extent, keeping a firm check on government spending is a key to achieving macroeconomic stability in Nigeria. More needs to be done to enthrone stable and competitive money supply, interest, inflation and exchange rates, strengthen our import-restriction policies, improvement of socio-economic overheads and ensuring stable political climate that will help build the confidence of investors both local and foreign, in the Nigerian Economy.