Inflation and Economic Growth in Nigeria: A Threshold Determination

Abstract

This study examined the effects of inflation on economic growth in Nigeria using annual datacovering the period of 1985 to 2022. Specifically, the study: investigates the existence of long and short run relationship between inflation and economic growth in Nigeria; and establishes the inflation threshold for economic growth in Nigeria. The ARDL long-run bounds test served as a crucial analytical tool, revealing a sustained association between inflation and economic growth over the years. Notably, the regression coef icient analysis uncovers a compelling negative and statistically significant relationship between inflation and output growth in Nigeria. The study further identified a critical threshold inflation level of 13 percent for Nigeria. Below this pivotal threshold, inflation demonstrates a positive impact oneconomic activities, acting as a stimulant for production. However, above the 13% threshold, inflation was found to exert a detrimental and statistically insignificant effect on economic growth in Nigeria. This nuanced finding highlights the delicate balance between inflation and economic prosperity. In the light of these findings, the study emphasizes the imperative for relevant authorities to craft and implement effective fiscal, monetary, and exchange rate policies aimed at managing and curbing inflation, ensuring it remains below the identified13% threshold. This strategic approach is crucial for maintaining price stability, fostering investment, optimizing supply chain efficiency, promoting trade by enhancing productivity, and ultimately catalyzing sustained economic growth in Nigeria. These measures, if implemented judiciously, hold the potential to reshape the economic landscape of Nigeria, ensuring a trajectory of stability and prosperity.