Inflation and Economic Growth in Nigeria: A Search for the Ideal Balance
DOI:
https://doi.org/10.47941/ijecop.3368Keywords:
CPI Inflation, Economic Growth, Phillips-Perron Unit Root Test, Phillips Curve Theory, Threshold Autoregressive (TAR) ModelAbstract
Purpose: This study attempts to empirically investigate the dynamic interplay between inflation and economic growth as well as determining the existence of inflation-growth threshold in Nigeria from 1981 to 2025. The unit root results from ADF and PP revealed that all the variables were stationary at first difference.
Methodology: The investigation is done using ARDL bounds test and TAR.
Findings: The evidence from the study strongly supports the existence of an inverse relationship between inflation and economic growth in Nigeria in the long run while there is a positive short run relationship between inflation and economic growth which indicates a short-term gain, aligning with the Phillips Curve theory. Further evidence suggests that there is an inflation threshold for Nigeria at 13 per cent.
Unique Contribution to Theory, Policy and Practice: The apparent policy implications are: the Central Bank of Nigeria should endeavor to keep the rate of inflation below 13 per cent as this will be growth inducing, since Nigeria's economic growth hinges on disciplined fiscal and monetary policies as such policymakers should exercise restraint in spending and borrowing. The findings further highlight the need to encourage private investment and increase financial liberalization to achieve a sustainable level of economic growth in real terms.
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