The Inflation and economic growth in Nigeria

Abstract

nflation and Economic Growth in Nigeria: A Systematic Review of Empirical Evidence (1999–2022)Muhammad G.1, Department of Marketing Mai Idris Alooma Polytechnic, Geidam.Mail: Muhammadgirgir5@gmail.comAbstractThis study systematically reviews empirical evidence on the relationship between inflation and economic growth in Nigeria over the period 1999–2022. Using a structured literature review approach, peer-reviewed journal articles and conference papers were selected based on predefined inclusion criteria. The study synthesizes findings from existing empirical works employing econometric techniques such as ARDL, VECM, OLS, and GMM. The results reveal mixed evidence; however, the majority of studies indicate a negative relationship between inflation and economic growth, particularly when inflation exceeds certain threshold levels. Evidence also suggests the presence of nonlinear dynamics in the inflation–growth nexus. The study concludes that maintaining moderate and stable inflation is essential for sustainable economic growth in Nigeria. Policy recommendations emphasize effective inflation targeting, monetary policy discipline, and structural reforms.Keywords: Inflation, Economic Growth, Nigeria, Systematic Review, Threshold Effects, Monetary Policy. IntroductionRealising sustainable economic growth together with price stability remains a central objective of macroeconomic policy in both developed and developing economies. Inflation, defined as a persistent increase in the general price level, has significant implications for economic performance, investment decisions, and income distribution. In Nigeria, inflation has traditionally exhibited volatility, posing challenges to macroeconomic stability and long-term growth.The theoretical and empirical relationship between inflation and economic growth has generated extensive debate. While some schools of thought argue that moderate inflation may stimulate growth by encouraging investment, others contend that inflation distorts price signals, discourages savings, and reduces economic efficiency. Empirical findings, particularly in developing economies like Nigeria, remain inconclusive.Despite numerous studies examining the inflation–growth nexus in Nigeria, there is no clear consensus due to differences in methodologies, time periods, and model specifications. More importantly, there is limited effort to systematically synthesize these findings to provide coherent policy direction.Objective of the Study:This study aims to systematically review and synthesize empirical evidence on the relationship between inflation and economic growth in Nigeria.Contribution:The study contributes by:Providing a structured synthesis of empirical findings Identifying patterns and inconsistencies in the literature Highlighting threshold and nonlinear effects Offering policy-relevant conclusions Literature Review Theoretical FrameworkQuantity Theory of MoneyThe Quantity Theory of Money posits a direct relationship between money supply and price level, expressed as:MV = PYWhere M = money supply, V = velocity, P = price level, and Y = output. Excess money supply leads to inflation without necessarily increasing real output.Keynesian TheoryKeynesian economics attributes inflation to excess aggregate demand over aggregate supply (demand-pull inflation). It suggests that moderate inflation may accompany economic expansion but excessive inflation can destabilize the economy.Monetarist TheoryMonetarists argue that inflation is primarily a monetary phenomenon. Persistent inflation reduces purchasing power and discourages investment, thereby negatively affecting economic growth.Structuralism TheoryStructuralisms contend that inflation in developing economies arises from structural rigidities such as supply constraints, weak institutions, and external shocks.Endogenous Growth TheoryThis theory emphasizes internal factors such as human capital, innovation, and investment as drivers of growth, suggesting that macroeconomic instability (including inflation) can hinder long-term growth. Empirical Review Systematic empirical literature review for this study are: Idris and Suleiman (2019) examine the effect of inflation on economic growth in Nigeria using vector error correction mechanism. Variables used for the study consist of GDP, exchange rate, inflation rate and interest rate. The study was from 1980-2017 and the result was that in the long run inflation and interest are statistically significant and have a negative relationship with economic growth. Adaramola and Dada (2020) examine the effect of inflation on economic growth from 1980 to 2018. Time series data on inflation rate, government consumption expenditure, exchange rate, supply of money, rate of interest, degree of openness and real GDP was utilized for the study. The study employed ARDL model, test for normality, cumulative sum test, heteroscedasticity test, and serial correlation LM test. Results found that interest rate and money supply have a direct linkage with the economic growth; while, exchange rate and inflation have an inverse relationship with economic growth. Bakare, Kareem and Oyelekan (2015), examined the effect of inflation rate on economic growth in Nigeria (1986 - 2014). The variables used are Gross Domestic Product (GDP) as a dependent variable and inflation rate as an independent variable. The result shows that inflation has a negative impact on economic growth. The Granger Causality shows that GDP cause inflation but inflation does not cause GDP. Empirical studies on inflation and growth in Nigeria can be categorized into three groups: Studies Reporting Negative RelationshipSeveral studies find that inflation adversely affects economic growth:Adaramola and Dada (2020): Inflation negatively impacts GDP growth using ARDL Bakare et al. (2015): Inflation reduces economic performance Idris and Suleiman (2019): Negative long-run relationship Studies Reporting Positive or Insignificant RelationshipSome studies find weak or positive relationships:Certain low-inflation environments show neutral or positive effects Short-run dynamics often differ from long-run results Threshold and Nonlinear EvidenceA growing body of literature suggests:Inflation affects growth only beyond certain thresholds High inflation (>20–40%) is consistently harmful Moderate inflation may not significantly harm growth MethodologyThis study adopts a systematic literature review approach. Data SourcesRelevant studies were sourced from:Google Scholar Scopus-indexed journals Research Gate Institutional repositories Inclusion CriteriaStudies were selected based on:Focus on Nigeria Empirical analysis of inflation and growth Published between 1999 and 2022 Use of econometric techniques Data AnalysisSelected studies were analysed using narrative synthesis, focusing on:Methodology Time perio