Macroeconomic Determinants and Economic Growth in Developing Economies: Empirical Evidence from Nigeria

In recent times,, the general consensus is that declining economic growth is permeating developing economies at alarming rate, including Nigeria. The performance of Nigeria’s economic growth has remained suboptimal and also very volatile despite all her aspirations for sustainable and inclusive growth. The main objective of this study is therefore to examine some selected major economic growth determinants in order to establish the degree of their influence on growth as well as the direction of causality that exists between economic growth and the selected growth indicators in Nigeria. The study, employed Johansen Co-integration test, Error Correction Model (ECM) and Granger Causality tests for a period spanning 1980 to 2012. Applying the newer endogenous growth framework and based on the empirical evidences, the results demonstrate that a positive and significant long-run relationship exists between economic growth (GDP) and some selected economic growth-indicators namely: productivity index (industrial), stock market capitalization and Foreign Direct Investment (FDI) indicating that they contribute effectively to growth., However, the impact of trade openness, although positive, is not significant. Others (inflation, Government fiscal deficit and national savings) show significant inverse relationship with economic growth, implying that they constitute constraints to the growth of the economy. The directions of causality between economic growth and these selected determinants are mixed – unidirectional, bilateral and independent. Overall, the speed of the equilibrium adjustment (as indicated by well-defined negative ECM coefficient), is slow and suggests that economic growth process in Nigeria tends to adjust slowly to the disequilibrium changes in those determinants in the short run, .indicating policy lag effect The study therefore recommends that the government should strive to achieve sustainable price stability, fiscal discipline, economic efficiency driven by infrastructural support and enhanced technology, to increase productive capacity. Stable polity and institutional reforms to promote trade, domestic and foreign investments, should also be highly emphasized. There is also need for the policy makers to take cognizance of the policy lag effect and design policies in line with the expected magnitude of expected changes.