THE IMPACT OF MONEY SUPPLY ON ECONOMIC GROWTH IN NIGERIA (1970-2007)

ABSTRACT

The study examined the impact of money supply on economic growth in Nigeria. In the model specified, real gross domestic product (real GDP) is the regress while real exchange rate, broad money supply and real interest rate are the regressors. Data was collected from CBN statistical bulletin for the period 1970-2007. The statistical technique used for the analysis is the ordinary least square, with the aid of P.C. give 8.00 software package.

The result indicates that the expansionary credit being supplied in Nigeria within the period under review failed to  influence the real gross domestic product. Real interest rate being the only significant regressor is not one of the target variables of monetary policy. It has been identified that the major problem militating against the poor performance of monetary policy instruments in influencing real GDP in Nigeria is time-lags involved which now makes any policy   employed by the government to take many months to achieve its full effect.

In effect to this, the effectiveness of influencing real GDP in Nigeria maybe promoted by emphasizing on real interest rate instead of on monetary target variables due to the fact that real interest rate is statistically significant.

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

In the critical observation of the recent Nigerian economic position, there has been a great divergence between the rate at which money is supplied and the exact impact it has on the general price level, which results in inflation and deflation on one hand, and the output growth (productivity) on the other hand. Although, it had occurred to our mind that Nigerian monetary policy continues to aim at achieving single digit inflation, a stable Naira, increase in domestic production and a stock of foreign exchange.