Macroeconomic Variables, Volatility and Economic Growth in Nigeria (1970 – 2005)

Macroeconomic Variables, Volatility and Economic Growth in Nigeria (1970 – 2005).

ABSTRACT

Low output growth in Nigeria have been attributed to a riumber offacto~s such as poor technology, demographic factors, social conditions, poor macroeccwomic policies, insufficient infrastructural facilities and high dependence on primary products What however, attracts lesser attention is the interface between output growth and macroeconomic fluctuations.

It is not only that output ~rowth is low but it fluctuates beyond the expectations of different macroeconomic analysts There have been varying rcsults among different existing empirical studies on the determinants of output growl11 in Nigeria.

Most of these studies used cross-country re~ression to estimate the determinants of output growth. Cross country regressions suffer from nieasurernent and specification bias because of the heterogeneous nature of macroeconomic data among less developed countries.

The current study adds to the existing literature by capturing tlie volatilily clustering of econonlic growth and its determinants using country specific regression.

It also addresses the problem of the relationship betweell current shock OH econoniic growth and conditional volatility of other periods ahead.

This is useful fbr forecasting volatility of economic growtli and otlier macroecononiic variables.

It further addresses the problem of determining the factors that are responsible for economic growtli and how slructural shocks arc transmitted among macroeconon~ic variables in Nigeria.

The study adopted two approaches: The Exponential Generalized Autoregressive Coiiditional tleteroscedasticity (EGAKCII) and Vector Error Con-cction (VEC) modcls EGIZKC’I I model was used to trace the deterininants of economic fluct~~ations and the volatilitv clustering of eco~iomic growtli The VEC model traced the trans~nissiorl of structiiral shocks among the variables.

The results show that lluctuations in economic growth is positively determined by the level of inflation rate, real interest rate, unemploymerit rate, but negatively influenced by investnient ratio, per capita inconie, real exchange rate and the degree of trade openness.

It further shows that there is transmission of structural shocks between econoniic growtli and its determinants. However, the tra~isniission mechanis~ii of these shocks is complex and difficult to determine.

The result of the conditional variance shows that there is high degree of volatility clustering between eco~lomic growth and its determinants.

The News Impact Curve (NIC’) indicates that the current sliocl< is intlucnced by the puevious shocks and its eff’ect on otlier period ahead decaj.s exponentially.

INTRODUCTION

Background of the study

Macroecol~omic policy in Nigeria has bee11 characterized by incf’ficie~~cy, I~iglily volatile and unsustainable public spending while fiscal decentralizatio~i has failed efficient public finance ma~iage~nent and effective ~ilacsocco~io~iiic stabili~ation.

Misalignnient among federal, states, and local government incorne and exl)erlditure Iias rerldered the traditional inst~.ument of economic ~nanagernwt ir~ef’fective. Governrne~it spending, at all levels is chal-acterized by pension csisis. arrcars of salaries of civil servants, huge external and domestic debts and ~nisallocation and inis~i~anage~nent of sesources.

The wosst situation is obtained at the state level where institutions are weak, econornic governance is poor and debts are accu~nulated at unsustainable level. (NEEDS, 2004).

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