Effect of Fiscal and Monetary Policy Instruments on Economic Growth of Nigeria from 1985-2016

Abstract

This research work examined Effect of Fiscal and Monetary Policy Instruments on Economic Growth of Nigeria from 1985-2016. The study was anchored mainly on the quantity theory of money. The researcher used secondary data from the Central Bank of Nigeria (CBN) Statistical Bulletin from 1985-2016. The data collected were analyzed using descriptive statistics such as Mean, Standard Deviation and Skewness and the relationship between the variables of the model was tested using Autoregressive Distributed Lag Model (ARDL) regression analysis after the data was found to be stationary and integrated of different orders. The result of the ARDL regression analysis shows that monetary policy rate having a positive relationship with real gross domestic product is unexpected owing to its ultimate effect on prime lending rate which affects productive economic activities. Government recurrent expenditure was found to have positive significant relationship with economic growth. Accordingly, the long run relationship between monetary policy, fiscal policy instruments and economic growth in Nigeria points to the critical role of the monetary policy decision of the Central Bank of Nigeria and Federal Government fiscal policy programmes on growth and development of economy. This study concludes that monetary policy measured by monetary policy rate and the fiscal policies proxied by government recurrent expenditure have not significantly affected economic growth in Nigeria. It was recommended that the Central Bank of Nigeria should further develop the financial sector through making more funds available to the private sector by reducing monetary policy rate which affects interest rate ceiling on loans to the private sector. And that the Central Bank of Nigeria should further develop the financial sector through making more funds available to the private sector by reducing monetary policy rate which affects interest rate ceiling on loans to the private sector.