Inflation and Economic Growth in Nigeria: An ARDL Approach

This study explores the relationship between inflation and economic growth in Nigeria using the Autoregressive Distributed Lag (ARDL) approach with annual secondary data from 1980 to 2024. Data were obtained from the World Bank’s World Development Indicators (WDI) to ensure authenticity and reliability. The study seeks to determine how inflation influences Nigeria’s economic growth in both the short run and the long run, considering the country’s history of price instability and fluctuating growth patterns. Three hypotheses were formulated: (1) inflation has a negative long-run effect on economic growth; (2) inflation has an insignificant short-run effect on growth; and (3) inflation and economic growth are cointegrated, indicating a long-run equilibrium relationship. The ARDL bounds testing approach was applied to test for cointegration, while the Error Correction Model (ECM) captured short-run dynamics and the speed of adjustment toward long-run equilibrium. Empirical results show a stable long-run relationship between inflation and growth. Inflation was found to have a negative and statistically significant impact on economic growth in the long term, while short-run effects were weak and insignificant. This suggests that persistent inflation undermines productive investment and overall economic performance. The study recommends that Nigeria’s monetary authorities adopt an explicit inflation-targeting framework and enhance policy coordination between fiscal and monetary institutions. Maintaining moderate inflation levels will promote investor confidence, economic stability, and sustainable growth.