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Inflation: How Much Is Too Much For Economic Growth in Nigeria

Author

Listed:
  • FABAYO, Joseph Ademola

    (Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria.)

  • AJILORE, Olubanjo Taiwo

    (Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria.)

Abstract

This study follows the methodology of Khan and Sendhadji (2001) to examine the existence of threshold effects in the inflation-growth relationship, using Nigeria data for the period 1970 to 2003. The results suggest the existence of inflation threshold level of 6 percent. Below this level, there exists significantly positive relationship between inflation and economic growth, while above this threshold level, inflation retards growth performance. Sensitivity analyses conducted confirmed the robustness of these results. This finding suggests that bringing inflation down to single digits should be the goal of macroeconomic management in Nigeria, while the optimal inflation target for policy in Nigeria is 6 percent.

Suggested Citation

  • FABAYO, Joseph Ademola & AJILORE, Olubanjo Taiwo, 2006. "Inflation: How Much Is Too Much For Economic Growth in Nigeria," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 41(2), pages 129-147, December.
    • Handle: RePEc:dse:indecr:v:41:y:2006:i:2:p:129-147
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    Citations

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    Cited by:

    1. Njindan Iyke Bernard & Odhiambo Nicholas M., 2017. "Inflationary Thresholds, Financial Development and Economic Growth: New Evidence from Two West African Countries," Global Economy Journal, De Gruyter, vol. 17(2), pages 1-11, June.
    2. Muhammad Mansha & Xiuyun Yang & Ahmed Raza ul Mustafa & Muhammad Mubashar Nasim, 2022. "Empirical Analytics of SAARC vs ASEAN in Perspective of Economic Growth and Capital Accumulation," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(2), pages 337-351, June.
    3. Yaya O. S. & Akintande O. J. & Ogbonna A. E. & Adegoke H. M., 2019. "Cpi Inflation In Africa: Fractional Persistence, Mean Reversion And Nonlinearity," Statistics in Transition New Series, Polish Statistical Association, vol. 20(3), pages 119-132, September.
    4. Andrew Phiri, 2020. "Endogenous monetary approach to optimal inflation–growth nexus in Swaziland," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 11(4), pages 559-571, March.
    5. Oziengbe Scott Aigheyisi, 2021. "Threshold Effects of Import Dependence of Economic Growth in Nigeria," ACTA VSFS, University of Finance and Administration, vol. 15(2), pages 198-219.
    6. Boniface Yemba & Erick Kitenge & Paul Woodburne, 2020. "Non‐linear Effects of Inflation on Economic Growth in the Democratic Republic of the Congo," South African Journal of Economics, Economic Society of South Africa, vol. 88(4), pages 536-550, December.
    7. Nepal Rastra Bank Research Department NRB, 2017. "Optimal Inflation Rate for Nepal," Working Papers id:12120, eSocialSciences.
    8. Ndoricimpa Arcade, 2017. "Working Paper 249 - Threshold Effects of Inflation on Economic Growth in Africa: Evidence from a Dynamic Panel Threshold Regression," Working Paper Series 2359, African Development Bank.
    9. Nepal Rastra Bank, 2017. "Optimal Inflation Rate for Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 29(1), pages 1-18, April.
    10. repec:exl:29stat:v:20:y:2019:i:3:p:119- is not listed on IDEAS
    11. Celil AYDIN, 2017. "The Inflation-Growth Nexus: A Dynamic Panel Threshold Analysis For D-8 Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 134-151, December.
    12. Joseph Magnus Frimpong & Eric Fosu Oteng-Abayie, 2010. "When is Inflation Harmful? Estimating the Threshold Effect for Ghana," American Journal of Economics and Business Administration, Science Publications, vol. 2(3), pages 232-239, September.
    13. Hasanov, Fakhri, 2011. "Relationship between inflation and economic growth in Azerbaijani economy: is there any threshold effect?," MPRA Paper 33494, University Library of Munich, Germany.

    More about this item

    Keywords

    Inflation; Economic Growth; Threshold Level;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

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