Empirical Analysis of the Effects of Macro-Economic Indicators on Economic Growth in Nigeria: An ARDL Model Approach

Abstract

In Nigeria, the economic landscape is shaped by a complex interplay of domestic and global forces; navigating it successfully requires a clear understanding of its character. This study examines the dynamic relationships between macroeconomic variables and Gross Domestic Product (GDP) growth in Nigeria, exploring them using the Autoregressive Distributed Lag (ARDL) model and other stability tests on time series data from 1972 to 2022. The Augmented Dickey-Fuller unit root test indicates stationarity of the External Reserve, Exchange Rate, and Export at first difference. Import was stationary at the second difference, while money supply became stationary at the fourth difference. The Auto Correlation Function test, used to identify the correlation coefficient at different lags, indicates that no autocorrelation existed in the model. The ARDL results indicated that GDP, Imports, and External Reserves are significant drivers of economic growth in Nigeria. Over the period under study, Imports provide a short-term positive effect but may pose long-term challenges. The influence of the Exchange Rate appears to be ambivalent: in the short term, it contributes to economic growth; in the long term, however, its effect may become detrimental owing to the resource constraints, which show how important it is to maintain stability through effective policies. The Money Supply and Export variables show influence but negatively affect the economic growth in both the short and long run. On the other hand, the External Reserve showed no influence in the short run but positively affects economic growth in the long run.

Keywords: Macroeconomic, variables, Economic growth, Nigeria