Author(s): Omankhanlen Alexander Ehimare, Samuel-Hope Divine Chinyere, Benjamin
This study investigated effect of money supply on economic growth in Nigeria between 1990 and 2018. There has been a certain relationship between the stock of money and economic development or economic activity in Nigeria since 1980. Over the years, Nigeria has been managing its economy by changing its stock of capital. As a result of the 1981 oil price crash and the balance of payment (BOP) deficit experienced during that time various stabilization strategies have been used, ranging from fiscal to monetary policy. The data used here are the annual time series data of the related variables, which are primarily secondary and taken from the CBN Statistical Bulletin, while the Autoregressive Distributed Lag data was adopted. Before we proceed to the estimation proper for the Autoregressive distributed lag (ARDL) regression model, it is important that we verify if they are jointly co-integrated or not. That is, if there exist a long relationship between the series in the model. In other to verify this, a bound co-integration is applied. This is followed by the Error Correction Model. The empirical results show that money supply components jointly enhance economic growth while the individuality of money supply indicators depicts different consequences. Broad money supply indicates positivity, yet weak significant to determine the economic growth in Nigeria. However, credit to the private sector is inversely and statistically significant to determine the economic growth in Nigeria. Inflation rate and interest rate both have inverse effect. Several policy implications can be drawn from this study. The government, in formulating monetary policy, must be aware of the fact that the economic growth responds more favorably to an increase in the money supply. The government must also be conscious of the relationship between the interest rate and credit to private sectors and the purpose in enhancing economic growth. Therefore, the study recommends that the Central Bank of Nigeria, should try to understand the role of money supply in enhancing economic growth and come up with monetary policies that will enable money supply to drive the economy properly in order to achieve economic growth.