Inflation and Economic Growth in Nigeria: Empirical Evidence?

Abstract

The main purpose of this study is to examine the relationship between Inflation and economic growth in Nigeria. The scope of the study spanned from 1970 to 2012. The methodology employed in this study is the Augmented Dickey-Fuller techniques to examine the unit root property of the series after which cointegration test was conducted through the application of Johansen cointegration technique to examine the long-run relationship between the two phenomenon also Granger causality test was conducted to determine causation between economic growth and inflation. The result of the test showed that there is a nonlinear relationship between economic growth and inflation and coefficient of inflation is negatively signed and statistically insignificant both in the current period and lag three and this result seems to suggest that inflation is averse to growth. Further effort was made to check the causality relationship that exists between the two variables by employing Granger causality test  and  the result show that there is no causation between economic growth and inflation. Various studies as reviewed in the literature came out with the result that high inflation is not favourable to economic growth. Ability to manage the growth of inflation to single digit as proposed in the literature may be an important factor to accelerate economic growth.

Key words: Economic Growth, Inflation, Nigeria.