Investment, Inflation and Economic Growth: Empirical Evidence From Nigeria

Abstract

This paper attempts to empirically examine the impact of investment and inflation on economic growth performance as well as showing the trend analysis between inflation and investment in Nigeria from 1981 to 2006 using econometrics model with Ordinary Least Square (OLS) technique. In an attempt to establish long-run relationship between investment, inflation and economic growth, the result of the regression reveals that the coefficient of inflation is negative and significant at 10% while that of Gross capital formation (GCF) is positive and significant at 1%. It implies that I per cent increase in inflation will result in 0.09 decreases in economic performance (RGDP). There is therefore a negative relationship between inflation and RGDP. A positive relationship also exists between investment (GCF) and RGDP (economic performance), of which 1 per cent change in investment (GCF) will bring about 0.3 per cent unit increases in economic performance. Increased investment would lead to increase consumption, also increase labour, increase productivity, increase output therefore improve the economic performance because there would be reduction in capital flight. It could therefore be recommended that both supply-side policies and demand management policies such as a reduction in real broad money supply should be adopted to reduce inflation in the short-run and in the long-run.

Keywords: Foreign Direct Investment; inflation; economic growth.