Money Supply and Economic Growth
Abstract
This study investigates the impact of key monetary policy variables on economic growth in Nigeria from 1982 to 2023, a period characterized by recurring inflationary pressures, exchange-rate instability, monetary regime shifts, and persistent macroeconomic imbalances. Against the backdrop of Nigeria’s long-standing struggle to achieve stable and sustainable output growth despite extensive monetary interventions, the research examines the distinct effects of broad money supply (M2), inflation rate , and interest rate on real GDP growth. Employing an ex-post facto research design and annual secondary time-series data, the study utilizes the Autoregressive Distributed Lag bounds testing technique to explore both the long-run and short-run dynamics among the variables. The empirical findings reveal that broad money supply exerts a positive and statistically significant long-run effect on economic growth, indicating that liquidity expansion continues to play a central role in stimulating investment, credit creation, and aggregate demand in Nigeria. Conversely, inflation rate exhibits a positive but statistically insignificant relationship with growth, suggesting that price movements—driven largely by structural and imported inflation—have not been a primary determinant of long-run output fluctuations. Interest rate displays a negative but statistically insignificant long-run effect, reflecting the weak interest-rate transmission mechanism within Nigeria’s shallow financial markets and the limited responsiveness of real sector activities to lending conditions. The study concludes that while money supply serves as an important driver of long-run economic performance in Nigeria, both inflation and interest rate remain weak instruments for influencing growth due to structural rigidities, financial market limitations, and institutional inefficiencies. It therefore recommends policies aimed at improving monetary policy transmission, stabilizing the inflation environment, deepening financial market development, and strengthening credit allocation frameworks to ensure that monetary interventions translate effectively into sustained economic growth. Section One
References
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(2021). Impact of money supply on real GDP in Ethiopia. Ethiopian Journal of Economics, 30(2), 73–95. World Bank. (2023). World Development Indicators. Washington, DC: The World Bank. Mahara, T. S. (2020). Money supply–economic growth nexus: Evidence from a landlocked country. Quest Journal of Management and Social Sciences, 2(1), 132–153. RGDP Is Not Stationary At Level Null Hypothesis: RGDP has a unit root Exogenous: Constant Lag Length: 1 (Automatic - based on SIC, maxlag=9) t-Statistic Prob.* Augmented Dickey-Fuller test statistic 0.728827 0.9914 Test critical values: 1% level -3.605593 5% level -2.936942 10% level -2.606857 *MacKinnon (1996) one-sided p-values. Augmented Dickey-Fuller Test Equation Dependent Variable: D Method: Least Squares Date: 11/21/25 Time: 06:32 Sample (adjusted): 1984 2023 Included observations: 40 after adjustments Variable Coefficient Std. Error t-Statistic Prob. RGDP(-1) 0.007614 0.010447 0.728827 0.4707 D(RGDP(-1)) 0.474832 0.140031 3.390901 0.0017 C 565.1306 443.3557 1.274666 0.2104 R-squared 0.298671 Mean dependent var 1538.543 Adjusted R-squared 0.260761 S.D. dependent var 1497.820 S.E. of regression 1287.811 Akaike info criterion 17.23131 Sum squared resid 61362878 Schwarz criterion 17.35798 Log likelihood -341.6263 Hannan-Quinn criter. 17.27711 F-statistic 7.878479 Durbin-Watson stat 2.177820 Prob(F-statistic) 0.001411 RGDP STATIONARY AT FIRST DIFFERENCE Null Hypothesis: D has a unit root Exogenous: Constant Lag Length: 0 (Automatic - based on SIC, maxlag=9) t-Statistic Prob.* Augmented Dickey-Fuller test statistic -3.757555 0.0067 Test critical values: 1% level -3.605593 5% level -2.936942 10% level -2.606857 *MacKinnon (1996) one-sided p-values. Augmented Dickey-Fuller Test Equation Dependent Variable: D(RGDP,2) Method: Least Squares Date: 11/21/25 Time: 06:34 Sample (adjusted): 1984 2023 Included observations: 40 after adjustments Variable Coefficient Std. Error t-Statistic Prob. D(RGDP(-1)) -0.489018 0.130143 -3.757555 0.0006 C 818.7300 273.0566 2.998389 0.0048 R-squared 0.270902 Mean dependent var 129.8563 Adjusted R-squared 0.251716 S.D. dependent var 1479.527 S.E. of regression 1279.842 Akaike info criterion 17.19557 Sum squared resid 62243831 Schwarz criterion 17.28001 Log likelihood -341.9114 Hannan-Quinn criter. 17.22610 F-statistic 14.11922 Durbin-Watson stat 2.219082 Prob(F-statistic) 0.000576 M2 IS NOT STATIONARY AT LEVEL Null Hypothesis: M2 has a unit root Exogenous: Constant Lag Length: 8 (Automatic - based on SIC, maxlag=9) t-Statistic Prob.* Augmented Dickey-Fuller test statistic 2.014683 0.9998 Test critical values: 1% level -3.646342 5% level -2.954021 10% level -2.615817 *MacKinnon (1996) one-sided p-values. Augmented Dickey-Fuller Test Equation Dependent Variable: D(M2) Method: Least Squares Date: 11/21/25 Time: 06:37 Sample (adjusted): 1991 2023 Included observations: 33 after adjustments Variable Coefficient Std. Error t-Statistic Prob. M2(-1) 0.333934 0.165750 2.014683 0.0558 D(M2(-1)) -0.094802 0.506205 -0.187279 0.8531 D(M2(-2)) 0.371117 0.519482 0.714399 0.4822 D(M2(-3)) 0.306148 0.507353 0.603422 0.5521 D(M2(-4)) 0.398649 0.640967 0.621950 0.5401 D(M2(-5)) -0.296144 0.708255 -0.418132 0.6797 D(M2(-6)) -2.801778 0.735645 -3.808602 0.0009 D(M2(-7)) 1.626249 0.894012 1.819046 0.0819 D(M2(-8)) -1.927643 0.868839 -2.218642 0.0367 C -202.5381 520.2446 -0.389313 0.7006 R-squared 0.872930 Mean dependent var 2386.741 Adjusted R-squared 0.823207 S.D. dependent var 4939.488 S.E. of regression 2076.896 Akaike info criterion 18.36018 Sum squared resid 99210471 Schwarz criterion 18.81367 Log likelihood -292.9430 Hannan-Quinn criter. 18.51277 F-statistic 17.55581 Durbin-Watson stat 2.118614 Prob(F-statistic) 0.000000 M2 IS STATIONARY AT FIRST DIFFERENCE Null Hypothesis: D(M2) has a unit root Exogenous: Constant Lag Length: 2 (Automatic - based on SIC, maxlag=9) t-Statistic Prob.* Augmented Dickey-Fuller test statistic 6.219759 1.0000 Test critical values: 1% level -3.615588 5% level -2.941145 10% level -2.609066 *MacKinnon (1996) one-sided p-values. Augmented Dickey-Fuller Test Equation Dependent Variable: D(M2,2) Method: Least Squares Date: 11/21/25 Time: 06:40 Sample (adjusted): 1986 2023 Included observations: 38 after adjustments Variable Coefficient Std. Error t-Statistic Prob. D(M2(-1)) 1.506665 0.242238 6.219759 0.0000 D(M2(-1),2) -2.175808 0.396456 -5.488144 0.0000 D(M2(-2),2) -1.798467 0.351305 -5.119382 0.0000 C -607.5655 468.1564 -1.297783 0.2031 R-squared 0.571081 Mean dependent var 711.4363 Adjusted R-squared 0.533235 S.D. dependent var 3464.249 S.E. of regression 2366.782 Akaike info criterion 18.47575 Sum squared resid 1.90E+08 Schwarz criterion 18.64813 Log likelihood -347.0393 Hannan-Quinn criter. 18.53708 F-statistic 15.08967 Durbin-Watson stat 1.778979 Prob(F-statistic) 0.000002 INFR IS STATIONARY AT LEVEL Null Hypothesis: INFR has a unit root Exogenous: Constant Lag Length: 1 (Automatic - based on SIC, maxlag=9) t-Statistic Prob.* Augmented Dickey-Fuller test statistic -3.385972 0.0174 Test critical values: 1% level -3.605593 5% level -2.936942 10% level -2.606857 *MacKinnon (1996) one-sided p-values. Augmented Dickey-Fuller Test Equation Dependent Variable: D Method: Least Squares Date: 11/21/25 Time: 06:49 Sample (adjusted): 1984 2023 Included observations: 40 after adjustments Variable Coefficient Std. Error t-Statistic Prob. INFR(-1) -0.459434 0.135688 -3.385972 0.0017 D(INFR(-1)) 0.229842 0.158301 1.451928 0.1549 C 9.021505 3.291805 2.740595 0.0094 R-squared 0.236600 Mean dependent var 0.698000 Adjusted R-squared 0.195335 S.D. dependent var 15.41820 S.E. of regression 13.83060 Akaike info criterion 8.163682 Sum squared resid 7077.562 Schwarz criterion 8.290348 Log likelihood -160.2736 Hannan-Quinn criter. 8.209481 F-statistic 5.733702 Durbin-Watson stat 1.945412 Prob(F-statistic) 0.006775 INTR IS STATIONARY AT LEVEL Null Hypothesis: INTR has a unit root Exogenous: Constant Lag Length: 0 (Automatic - based on SIC, maxlag=9) t-Statistic Prob.* Augmented Dickey-Fuller test statistic -3.222578 0.0257 Test critical values: 1% level -3.600987 5% level -2.935001 10% level -2.605836 *MacKinnon (1996) one-sided p-values. Augmented Dickey-Fuller Test Equation Dependent Variable: D Method: Least Squares Date: 11/21/25 Time: 06:52 Sample (adjusted): 1983 2023 Included observations: 41 after adjustments Variable Coefficient Std. Error t-Statistic Prob. INTR(-1) -0.422813 0.131203 -3.222578 0.0026 C 5.614649 1.737508 3.231438 0.0025 R-squared 0.210287 Mean dependent var 0.286585 Adjusted R-squared 0.190038 S.D. dependent var 3.800583 S.E. of regression 3.420446 Akaike info criterion 5.344969 Sum squared resid 456.2785 Schwarz criterion 5.428558 Log likelihood -107.5719 Hannan-Quinn criter. 5.375408 F-statistic 10.38501 Durbin-Watson stat 1.981735 Prob(F-statistic) 0.002567
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