Price Level, Economic Growth And Macroeconomic Performance In Nigeria: A Granger Causality Modelling And Ardl Approach
Author: ADENIYI I. OKEOWO and HASSAN O. OZEKHOME
Published in IJED, Vol. 13 No. 2
The paper examines the nexus between general price level, economic growth and macroeconomic performance in Nigeria, using Granger Causality Modeling and Auto Regressive Distributed Lag (ARDL) approach on annual time series data covering the period 1987-2018. The empirical findings reveal a short-run equilibrium and long run relationship between price level, economic growth and the indicators of macroeconomic performance-investment and exchange rate. A weak speed of macroeconomic adjustment is shown by the dynamic results. Economic growth and general price level are found to have more significant (pronounced) impacts on exchange rate than on investment. Hence, the economy is likely be more susceptible to external shocks than internal shocks, particularly as crude oil price which the Nigerian economy heavily depends on is highly volatile in the international market, making the domestic economy vulnerable to internationally generated and transmitted shocks. The causality results show that economic growth granger cause investment, implying that output growth is a stimulator of investment. In the same vein, oil price granger cause exchange rate and not vice versa, an implications that oil price shocks causes exchange rate shocks/fluctuation. Based on this, sound macroeconomic policy environment, strong institutional quality and currency sterilization are required as panacea to exchange rate instability and misalignment.