THE MACROECONOMIC DETERMINANTS OF ECONOMIC GROWTH IN NIGERIA
Attaining a sustainable level of economic growth which would further translate into economic development is the major aim of policy makers in various countries as it impacts positively on the citizenry and drives the economy even further to a better level of equilibrium than that which it currently finds itself in. Various studies have looked at the impact of macroeconomic determinants used in this study either individually or as a collection and the effect which such have on economic growth. This study therefore empirically examined the macroeconomic determinants of economic growth in Nigeria obtaining data for a thirty five year period between 1981 and 2015 for the various variables of interest used in the study which include Gross Domestic Product (GDP), Inflation rate, Interest rate, Exchange rate and Unemployment rate.
The results of the study was analyzed using various tests such as the descriptive statistics, stationarity tests using the Augmented Dickey Fuller test and Phillip Perron tests, the Bound cointegration test for establishing the long run relationship of the variables as well as the Pairwise granger causality test to establish the level of causality among the variables of interest Also, the Autoregressive Distributed Lag (ARDL) model was used in analyzing the regression results while stability and diagnostic tests using were carried out to establish the appropriateness of the ARDL model for the study. Also, heteroskedasticity and autocorrelation tests were carried out to ensure the absence of serial correlation among the variables used in the study.
The result findings revealed that inflation contributes positively to economic growth; interest rate and unemployment have a negative impact on economic growth while exchange rate only contributes positively to economic growth in the short run with a negative effect experienced in the long run. As for past GDP, the result shows that it contributes positively to current GDP.
The study concludes that past income as influenced by the macroeconomic variables contribute significantly to the current level of income in the Nigerian economy. The study thus recommends among others that inflation targeting which would commensurate the level of economic growth should be pursued by policy makers. Also recommended was policies which would discourage the inflow of excessive foreign capital which makes exportables expensive and worsens the import dependency of the country. In addition, social policies that would encourage transfer of resources to the rural and poor areas were recommended.
Keywords: Macroeconomic determinants, Economic Growth (GDP), Inflation rate, Exchange Rate