Impact of Macro-Economic Variables on Nigerian Economic Growth
Chapter One
Objectives of the Study
The broad objective of this research work will be to analyze the impact of macroeconomic variables on economic growth in Nigeria
This will be achieved through the following:
- To determine the impact of some macroeconomic variables under study on economic growth in Nigeria.
- To investigate if there is a causal relationship between the macroeconomic variables under study and economic growth in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Conceptual Framework
Concept of Unemployment
The International Labour Organization (ILO) (2001) defines unemployment as a situation of being out of work or of needing a job and continuously searching for it in the last four weeks, or of someone unemployed(age 16 or above) but available to join the work force in the next two weeks. Unemployment rate the (Nigerian version) is the proportion of those who are looking for work but could not find work for at least 40 hours during the reference period to the total currently active (labour force) population .The category of people considered not in the labour force include those without work, who are not seeking for work and/or are not available for work as well as those below the working age (Olawale, 2015).
Unemployment rate according to Eme (2014) refers to the percentage of total workforces who are unemployed and are looking for a paid job. Unemployment rate is one of the most closely watched statistics because a rising rate is seen as a sign of weakening economy that may call for cut in interest rate.
Economists generally distinguish between three different types of unemployment. Frictional unemployment exists when a lack of information prevents workers and employers from becoming aware of each other. It is usually a side effect of the job-search process, and may increase when unemployment benefits are attractive. Structural unemployment occurs when changing markets or new technologies make the skills of certain workers obsolete. And finally, cyclical unemployment is a result of the cyclical nature of the economy and occurs whenever there is a general downturn in business activity.
According to Nwamuo (2016) some level of unemployment will always be present in an economy as industries expand and contract, as technological advances occur, as new generations enter the labor force, and as workers voluntarily search for better opportunities. This is why most economists agree that there is a natural rate of unemployment in the economy (usually 4%-6%).
Concept of Price Stability
Price stability connotes a long period of time devoid of fluctuations of both domestic and external prices. Price stability is an important macroeconomic objective as continues fluctuation in prices discourages investment (both foreign and domestic investment). During period of increasing inflation, which is not accompanied by a corresponding increase in output, will lead to increased suffering of the lower citizens also during periods of increasing deflation, manufacturing companies will be forced to drop production and lay off works, the consequences of this is a reduction in economic growth (CBN, 2011).
Price stability can broadly categorize into domestic and external price stability;
Domestic Price Stability: domestic price stability is measured using consumer price index (inflation).According to Balami (2006), inflation is a situation of a rising general price level of broad spectrum of goods and services over a long period of time. It is measured as the rate of increase in the general price level over a specific period of time.
Inflation is one of the most frequently used terms in economic discussions, yet the concept is variously misconstrued. There are various schools of thought on inflation, but there is a consensus among economists that inflation is a continuous rise in the prices. Simply put, inflation depicts an economic situation where there is a general rise in the prices of goods and services, continuously. It could be defined as ‘a continuing rise in prices as measured by an index such as the consumer price index (CPI) or by the implicit price deflator for Gross National Product (GNP).
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
The Multiple Regression econometric method would be used for the analysis of this research work. Econometric methods are statistical methods specifically adapted to the peculiarities of economic phenomena Koutsoyiannis (1997). It is adopted because of its ability to provide a precise prediction of economic magnitude. To achieve this, method of OLS estimation will be employed for the econometric analysis. This is because the method of least square has some very attractive statistical properties that have made it one of the most powerful and popular method of regression analysis. Also in addition to this a unit root test will be conducted using the ADF test statistics to verify the stationary properties of the variables
Model Specification
In an attempt to evaluate the effect of macroeconomic variables one economic growth in Nigeria (following the works of Kolawole(2013) who based his work on the Maastricht criteria), the below functional relationship of the model is given as;
CHAPTER FOUR
DATA ANALYSIS AND DISCUSSION
UNIT ROOT TEST
The unit root is conducted in order to ascertain the level of integration of our variables and to verify if they are stationary or non-stationary variables, table 4.1 gives a summary of this test, for details see appendix 1. In doing this, it is assumed that there is a trend and constant in each variable, 0.05 level of significance and zero lagging intervals.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
Conclusion
The study has attempted to review the relationship between economic growth and some selected macroeconomic variables (inflation, interest and exchange rate, unemployment rate and balance of payment) over a period of 36 years ranging from 1981 to 2015. In examining this relationship, extensive empirical, theoretical and conceptual tools were employed, also the ordinary least squares estimation technique was used to carry out a quantitative econometric investigation. Furthermore a co-integration test was conducted using the Engle and Granger two steps method to enquire if there is any form of long run relationship amongst the observations. The findings of this study are summarized as follows;
- Balance of payment, exchange rate and interest rate are positive but yet insignificant at explaining economic growth in Nigeria.
- Inflation rate is negative and significant at explaining economic growth in Nigeria.
- Unemployment rate is negative and insignificant at explaining economic growth in Nigeria.
Recommendations
Based on the above findings, the following recommendations are thus given;
- The study suggests that the policy maker should take tight policies against reduction of inflation growth in the country by implementing the tools such as controlling money supply in the market through open market operation, setting up interest rate and setting of bank reserve requirement. Government of Nigeria should take serious steps to control the inflation rate such as reducing imports and increasing exports, reducing government expenditures, give priority to agriculture sector, take serious consideration to food prices, increase and utilize energy resources with low production cost and remove security threats.
- The result of the current study shows positive impact of the exchange rate on the economy of Nigeria. A strong exchange rate leads low cost of production with cheap imports and also helps to control inflation due to low prices of foreign goods and services. Therefore study suggests to the policy makers to maintain high exchange rate in order to boost up the economy of Nigeria.
- The central bank of Nigeria in collaboration with other subsidiary banking unit like the commercial banks and microfinance banks should intensify the campaign for improved banking culture of Nigerian so as to capture majority of money in circulation under its monetary instruments (like interest rate) as this will enable them achieve their monetary objectives.
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