Inflation and Standard of Living in Nigeria

Abstract

Standard of living is very germane to every economy. It gives a broad view of how the economy is fairing on a global scale. If an individual cannot get required basic necessities due to low purchasing power, his/her marginal propensity to consume (MPC) rises which makes it more difficult for the individual to live comfortably hence the standard of living dips Several researches have been carried out but the standard of living still remains abysmally low. From empirical review we find that several countries in sub-Sahara Africa, Nigeria inclusive suffers from low standard of living. The case of Nigeria being evidently sever as the Nigeria currently the poverty capital of the world with over 91 million people living below in abject poverty. Time series data on inflation rate and standard of living proxied by the Human Development Index (HDI) between 1998 and 2017 was used for this research. Augmented Dickey Fuller and Phillip-Perron unit root tests were used to test for stationarity of the data. Based on findings, the Auto Regressive Distributed Lagged (ARDL) model was adopted for inferential analyses. Descriptive statistics employed include skewness, kurtosis, Jarque-Bera test and Breuch-Pagan-Godfrey serial correlation LM test, Breuch-Pagan test for heteroscedasticity and the Durbin-Watson test. Results indicated that there exists a long-run relationship between Inflation and standard of living. Inflation exhibited a negative and significant effect with a coefficient of -0.034 against a P-value of 0.017 which implied that a unit increase in inflation brings about 0.034unit decrease in standard of living over the period of study. Based on findings we recommend that a proper blend of fiscal and monetary policies should be employed to improve the standard of living of Nigerians.

Keywords: Inflation rate, Monetary policies, Poverty, Standard of living, Fiscal policies

DOI: 10.7176/DCS/10-4-06

Publication date: April 30^th 2020