Selected Macroeconomic Variables and Economic Growth in Nigeria

Abstract

This study examines the impact of specific macroeconomic factors on economic growth in Nigeria from 1981 to 2024. Per capita income is used as an indicator of economic growth, with the Johansen cointegration method and an error correction model (ECM) employed to analyse the dynamic interrelationships among exchange rate, inflation, trade openness, and balance of payments. Unit root tests indicate that all variables are integrated of order one, validating the use of cointegration analysis. The Johansen test reveals three cointegrating vectors, signifying a long-term equilibrium relationship among the variables. Long-term estimates indicate that the exchange rate adversely affects economic growth, while inflation and trade openness have a positive influence. In the short term, the error correction term is correctly signed and significant, indicating convergence to long-run equilibrium at an annual adjustment rate of 24%. In addition, the lagged values of trade openness and balance of payments exert a favourable impact on short-term economic growth. The findings underscore the importance of macroeconomic stability, especially in exchange rate regulation, inflation management, and trade policy, for promoting sustained economic growth in Nigeria. The study advocates for measures that encourage trade liberalisation, maintain moderate inflation, and improve external sector performance to support long-term economic development.