Determinants of Economic Growth in Nigeria: Evidence from Error Correction Model Approach.

Abstract

The determinants of economic growth have attracted increasing attention in both theoretical and empirical research. One reason why issues of economic growth have been given much attention is that a sustained economic growth is essential for a country’s long-term development and stability. Like many developing countries, the Nigerian economy, has had a volatile “growth-history”. Against this backdrop, this paper investigated the determinants of economic growth in Nigeria through the application of the Johansen co-integration technique and the vector error correction methodology. The results of the co-integrating technique suggest that there is long run relationship among domestic savings, expenditures on education and health, openness to trade, FDI, public infrastructure, and financial deepening with growth of real GDP per capita. The results of the VECM reveals that while domestic savings, expenditure on education, openness, and financial depth (in the second lag) are positive determinants of economic growth, FDI and public infrastructure  do not drive economic growth in Nigeria. It was also discovered that expenditures on health had negative effects on growth. A major policy implication of our result is that concerted effort should be made by policy makers to ensure macroeconomic stability and a conducive investment climate (in terms of stable power supply) so as to increase FDI inflow, and relaxation of credit constraints in Nigeria.

Keywords: Economic Growth, Johansen Co-Integration, VECM, Nigeria.