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An Analytical Study of the Impact of Inflation on Economic Growth in Nigeria (1970-2016)

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  • Sunusi Yahaya Enejoh
  • Ahmad Muhammad Tsauni

Abstract

Inflation discourages savings and investment, it favours debtors at the expense of creditors, fixed income earners are worse off during inflation and it leads to unfavourable balance of payment as the export becomes dearer while import becomes cheaper. The objective of this paper is to analyse the impact of inflation on economic growth in Nigeria for the period 1970 to 2016. The unit root properties of the series were tested. The result shows that the variables are I(0) and I(1). Therefore, the paper employed ARDL approach to co-integration and error correction mechanism (ECM) to test both the short and long run impact of inflation on economic growth. The result shows that inflation and foreign exchange have positive impact on economic growth both in the short and long run. The impact of foreign exchange on economic growth became negative at lag 1 and 2 in the short run. The model is free from auto correlation and heteroscedasticity and the model is stable. The Granger causality shows that inflation and foreign exchange rates do not Granger cause economic growth. The paper recommends inflationary targeting at single digit.

Suggested Citation

  • Sunusi Yahaya Enejoh & Ahmad Muhammad Tsauni, 2017. "An Analytical Study of the Impact of Inflation on Economic Growth in Nigeria (1970-2016)," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 7(4), pages 110-120, October.
    • Handle: RePEc:hur:ijaraf:v:7:y:2017:i:4:p:110-120
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    References listed on IDEAS

    as
    1. Faraji KASIDI & Kenani MWAKANEMELA, 2013. "Impact of Inflation on Economic Growth: A Case Study of Tanzania," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(4), pages 363-380.
    2. Kevin S. Nell, 2000. "Is Low Inflation a Precondition for Faster Growth? The Case of South Africa," Studies in Economics 0011, School of Economics, University of Kent.
    3. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
    4. repec:asi:ajoerj:2013:p:363-380 is not listed on IDEAS
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    1. Anh Tru Nguyen, 2018. "The Relationship among Economic Growth, Trade, Unemployment, and Inflation in South Asia: A Vector Autoregressive Model Approach," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 5(2), pages 165-172.
    2. Karikari-Apau, Ellen & Abeti, Wilson, 2019. "The Impact of Unemployment on Economic Growth in China," MPRA Paper 96100, University Library of Munich, Germany.
    3. Ismaila Akanni Yusuf & Mohammed Bashir Salaudeen & Isaac Azubuike Ogbuji, 2022. "Exchange Rate Fluctuation and Inflation Nexus in Nigeria: The Case of Recent Recession," Journal of Economic Impact, Science Impact Publishers, vol. 4(1), pages 81-87.
    4. Lawrence U. Okoye & Alexander E. Omankhanlen & Johnson I. Okoh & Uchechukwu E. Okorie & Felix N. Ezeji & Benjamin I. Ehikioya & Gideon K. Ezu, 2021. "Effect of Energy Utilization and Financial Development on Economic Growth in Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 11(2), pages 392-401.

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