Asymmetric Effects of Money Supply Growth on Economic Growth in Nigeria: An Empirical Investigation

Abstract

The study employs the Shin-Greenwood-Yin nonlinear autoregressive distributed lag (NARDL) approach to cointegration and error correction modeling to examine the asymmetric effects of broad money growth on economic growth in Nigeria. Annual time series data spanning the period from 1981-2016 is used for the analysis. The study finds asymmetric relationship between the variables in the short run, as positive change in broad money growth affects economic growth positively and significantly, while negative change has negative, sizable and significant effect on economic growth. The study also finds no significant effect of positive change in broad money growth on economic growth in the long run. Negative change in broad money growth positively and significantly affects economic growth in the long run. Further evidence from the study is that growth in government financial consumption expenditure positively affects economic growth in the short-and long-run, while inflation adversely affect growth in both time horizons. Based on the evidence, it is recommended that to achieve long run growth, growth of money supply and inflation should be controlled, and government final consumption expenditure should be increased to boost economic activities.