Re-Examining the Relationship between Inflation, Exchange Rate and Economic Growth in Nigeria

Abstract

This paper reexamining the relationship between inflation, exchange rate and economic growth in Nigeria. The study used annual time series data from 1981 to 2016 sourced from Central Bank of Nigeria Statistical Bulletin (CBN). The study employed ARDL Model to test for short and long run relationship among the variables. The empirical results show that there is long run relationship among the variables. The short run result reveals that only inflation has a negative relationship with economic growth in Nigeria. The indirect relationship between inflation and economic growth requires urgent attention by government because variation in exchange rate translate to export and import of goods and services will be associated with inflation as the fluctuation in exchange rate leads to upward and downward trend in price.

Financial globalization and institutions in Africa: the case of foreign direct investment, central bank independence and political institutions

“…The control of these variables by an independent central bank gives assurance to foreign investors about the preservation of the value of their investments. Where multinationals invest for export purposes for instance and use host countries as export platforms, they prefer low inflation and strong exchange rate countries in order to protect their purchasing power and investments (Ahmed et al, 2018) and make their exports more competitive (Moran, 2018;Polillo and Guillen, 2005). An independent central bank, as a major veto player, can contribute to having broad institutional stability and the protection of investor property rights.…”