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ECONOMIC GROWTH IN NIGERIA: AN EMPIRICAL INVESTIGATION OF DETERMINANTS AND CAUSAL RELATIONSHIP (1980 – 2012)
Abstract In recent years, all her efforts to grow the economy, Nigeria’s rate of economic growth has remained very volatile and sluggish. This study therefore examines the major economic growth determinants as well as the direction of causality that exists between economic growth and some selected economic growth indicators in Nigeria, employing the Johansen Co-integration and Granger Causality tests for a period spanning 1980 to 2012. Leaning on the newer endogenous growth framework and based on the empirical evidences, the results demonstrate that a positive and significant long-run relationship exists between economic growth (GDP) and some selected economic growth- indicators namely: productivity index (industrial), stock market capitalization and FDI indicating that they are major growth determinants. However, the impact of trade openness, although positive, is not quite impressive as reflected in the size of its regression coefficient in part. Others (inflation and excessive Government fiscal deficit) show significant inverse relationship with economic growth, implying that they constitute impediment to the growth of the economy. The directions of causality between economic growth and the selected determinants are mixed – unidirectional, bilateral and independent. Overall, the speed of the equilibrium adjustment (as indicated by well- defined negative ECM coefficient) is slow and suggests that economic growth process in Nigeria tends to adjust slowly to the disequilibrium changes in those determinants suggesting policy lag effect., Based on these findings, the study recommends that the government should strive to achieve sustainable price stability, fiscal discipline, economic efficiency driven by infrastructural support and enhanced technological capabilities, strong institutional and economic reforms to increase production capacity. Stable polity should also be highly emphasized in order to promote trade, domestic and foreign investments, There is also need for the policy makers to take cognizance of the policy lag effect and design policies in line with the expected magnitude of expected changes.
Keywords Economic Growth, Determinants, Co-integration, Unit Root Test, and Causality Tests