IIARD International Institute of Academic Research and Development

IIARD International Journal of Economics and Business Management (IJEBM )

E-ISSN 2489-0065
P-ISSN 2695-186X
VOL. 2 NO. 3 2016

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The Link between Money Supply and Economic Growth in Nigeria: An Econometric Investigation

Iwedi Marshal

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Abstract

The study aims at examining the link between money supply and economic growth in Nigeria. The researcher applied the cointegration and VAR model in a simple regression framework. Money supply (proxied by M2) has a short and long run positive and significant link on Real Gross Domestic Product in Nigeria. On ADF test results, it shows the two series were non-stationary at their levels, but they were stationary at first difference, this means the series M2 and RGDP were integrated at order one I(1). When the ADF test shows that the residuals are free of unit roots, it means that residuals are stationary and cointegrated at degree zero I(0), which means there are cointegration between M2 and RGDP and so there is an equilibrium relationship between the two variable in the long run. On causality, there is a causality running from M2 to RGDP and not vice versa. This shows that there is unidirectional causality from money supply (M2) to Real GDP in Nigeria during the period of study. With this, we can infer that changes in money supply help to explain the changes in RGDP in Nigeria. As such the study recommends that Economic growth (RGDP) can be achieved if monetary policy is emphasized both on short and long run by Nigeria monetary authorities. Policy redirection in favor of more responsible use of monetary policy to affect the economy as well as combat corruption in the country should be employed.

keywords:

Money Supply, Real GDP, Cointegration, VAR, Nigeria

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