AN ASSESSMENT OF SELECTED MACROECONOMIC INDICATORS ON ECONOMIC GROWTH: THE NIGERIAN EXPERIENCE.

Abstract

The study examined the empirical relationship between macroeconomic indicators and economic growth in Nigeria. The research methodology entailed an estimation of Vector Error Correction Model (VECM) with the following hypothesized variables, gross domestic product (GDP) used as proxy for economic growth, government expenditure (GEX), foreign direct investment (FDI), trade openness (TOP), money supply (M2), and inflation (INF). The correlation matrix result revealed a positive and strong correlation between the variables except inflation which showed a negative and weak correlation with the GDP. The results of VECM technique revealed that the error correction coefficient (-0.011) which measures the speed of adjustment towards long run equilibrium has the required negative sign, within the accepted region of less than unity and significant at 1% level. The coefficient of Vector Error Correction (VEC) indicated a speed of about 1.1% of the previous period disequilibrium from the long run economic growth. Analysis of the findings suggests that the impact of the macroeconomic indicators on economic growth was dismal. It was therefore recommended that government should increase her expenditure on productive venture like capital projects in order to bring about greater economic output and its multiplier effects on increased income and employment opportunities. Also, the government should aim at increasing the inflows of foreign direct investment (FDI) into the country by initiating favourable policies such as tax concessions to investors in strategic sectors like mining and agriculture.