Relationship between Inflation and Economic Growth in Nigeria: An ARDL Approach

Abstract

The relationship between inflation and economic growth has been a considerable issue of discussion generating controversies in the economic literature. This study investigated the relationship between inflation and economic growth in Nigeria using ARDL bound test approach to co-integration (Autoregressive Distributed Lag Model) from 1986 to 2020. The result revealed the presence of a long run and short run relationship between inflation and growth in Nigeria, a percentage unit change in inflation has resulted to a 31 percent and 21.9 percent decrease on economic growth of Nigeria, this indicates that inflation has a negative impact on economic growth of Nigeria in the long run and the short run periods, in addition, Interest rate spread (IRS) has a negative effect on economic growth with a decrease of 14 percent in the long-run while maintaining a positive short-run effect of 33 percent. Furthermore, government consumption expenditure has positively affected economic growth by 0.02 percent in the long run, Population is significant but eventually decreased the GDP by 8.57 percent annually. Therefore, the study recommends the review of the existing national policies in order to achieve price stability in Nigeria. Other factors, such as government consumption expenditure, population, and the interest rate spread, should be considered when prescribing policies to reduce inflation in Nigeria.