ABSTRACT
The study examined the impact of money supply on economic growth in Nigeria. In the model specified, real gross domestic product (real GDP) is the regress while broad money supply, real exchange rate, and real interest rate are the regressors. Data was collected from CBN statistical Bulletin for the period 1981 – 2010. The statistical techniques used for the analysis is the ordinary least square techniques with the aid of Stata 10 software package. The research indicates that real interest rate and real exchange rate in Nigeria within the period under study failed to influence real gross domestic product while broad money supply being the only significant regressor influenced real gross domestic product (real GDP) within the period under study. It has been identified that the major problem militating against the poor performance of monetary policy instruments in influencing real GDP in Nigeria is time lags involved which now makes any policy employed by the government to take many months to achieve its full effect. In effect to this, effectiveness of influencing real gross domestic product in Nigeria maybe promoted by emphasizing on broad money supply instead of on monetary target variables due to the fact that broad money supply is statistically significant.
8
TABLE OF CONTENTS
Cover Page …………………………………………………………………………………….. i
Title Page ……………………………………………………………………………………… ii
Approval Page ………………………………………………………………………………… iii
Dedication ……………………………………………………………………………………… iv
Acknowledgment ……………………………………………………………………………. v
Abstract …………………………………………………………………………………………. vi
Table of Contents ……………………………………………………………………………. vii
CHAPTER ONE: INTRODUCTION
1.1 Background to the study ……………………………………………………………..
1.2 Statement of Problem ………………………………………………………………….
1.3 Objective of the Study ………………………………………………………………..
1.4 Research Hypothesis …………………………………………………………………..
1.5 Significance of Study ………………………………………………………………….
1.6 Scope and Limitation of Study …………………………………………………….
CHAPTER TWO: LITERATURE REVIEW
2.1 Review of Theoretical Literature ………………………………………………..
9
2.2 Review of Empirical Literature ………………………………………………….
2.3 Why is money supply important …………………………………………………
2.4 Meaning of monetary policy ………………………………………………………
2.5 Objectives of Monetary Policy ………………………………………………….
2.6 Monetary Policy formulation in Nigeria …………………………………….
2.7 Determinants of money supply in Nigeria ……………………………………
2.8 Monetary policy in Nigeria ………………………………………………………..
2.9 Factors that have militated against the effectiveness of monetary policy in Nigeria ……………………………………………………………………………………………
2.10 Nigeria financial institutions …………………………………………………….
2.11 Objectives of Nigerian financial institutions ………………………………
2.12 Significant developments in the Nigerian financial
Institutions …………………………………………………………………………….
2.13 The impacts of money supply in Nigeria economy ……………………..
2.14 Control of money supply in Nigeria ………………………………………….
CHAPTER THREE
3.0 Research Design and Methodology …………………………………………….
3.1 Introduction ……………………………………………………………………………..
3.2 Model Specification ………………………………………………………………….
3.3 Estimation procedure ………………………………………………………………..
10
3.4 Method of evaluation ………………………………………………………………..
3.5 Data required and sources ………………………………………………………….
CHAPTER FOUR
4.0 Presentation and Analysis of Result ……………………………………………
4.1 Presentation of Result ……………………………………………………………….
4.2. Analysis based on statistical criteria (1st order test)
4.3 Econometric test or 2nd order test ………………………………………………..
4.4 evaluation of working hypothesis ……………………………………………….
CHAPTER FIVE
5.0 Summary, Conclusion and Policy Recommendation …………………….
5.1 Summary of finding ………………………………………………………………….
5.2 Policy Recommendation ……………………………………………………………
5.3 Conclusion ………………………………………………………………………………
Bibliography ……………………………………………………………………………………
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The relationship between money supply and economic growth has been receiving increasing attention than any subject matter in the field of monetary economics in recent years. Economists differ on the effect of money supply on economic growth. while some agreed that variations in the quantity of money is the most important determinant of economic growth and that countries that devote more time to studying the behavior of aggregate money supply experiences much variations in their economic activities(handle 1997),others are skeptical about the role of money on gross national income (Robinson 1950, 1952).
Evidence has shown that since 1980 some relationship exist between the stock of money and economic growth or economic activity in Nigeria. Over the years, Nigeria has been controlling her economy through variations in her stock of money. Consequent upon the effect of the collapse of oil price in 1981 and the balance of payment (BOP) deficit experienced during this period, various methods of stabilization ranging from fiscal to monetary policy were used. Ikhide and Alwoda (1993) concluded that reducing money stock of money through increased interest rates would lower gross national product (GNP). Thus the notion that stock of money varies with economic activities applies to the Nigerian economy. As already explained money supply exerts considerable influence on economic activity in both developed and developing economics. The low level of supply of monetary aggregates in general and money stock in particular had been responsible for the
12
fundamental failure of many African countries to attain growth and development. Various scholars have laid much of the blame for the failure of monetary policies to translate into economic growth on the government and its agencies as a result of poor implementation and sincerity on the part of policy executors.
In discussing the concept of money supply and its impacts, two other issues often come to our mind which is the state of inflationary pressure and the unemployment rate. According to the monetarist, an increase in money supply in an economy causes an increase in general price level of commodities which brings about inflationary in the country (uzougu 1981). Also related to the issue of inflation is the issue of unemployment which is the primary goal of any economy so as to produce as many goods and services as possible while maintaining an acceptable level of price stability, but this major goal will be very difficult to attain at high inflation rate and price instabilities due to excess money supply in the economy. This research work therefore, would review the technicalities involved in the control of money supply in Nigeria.
1.2 STATEMENT OF THE PROBLEM
A study of this nature is always necessitated by the existence of certain problems. The major problem that trigged off this work is the recurrence of general
13
price instability, persistent inflationary pressures and unemployment in the economy, in spite of the plethora of monetary policy measures adopted and applied over the years.
There is also this problem of general feeling that a continuous annual rate of money increases will adversely increase the rate of price level which will directly lead to inflation, which may deny the intended effects of use of monetary policy measure to influence economic growth thus, requiring a policy response. Recently, these inflationary pressures have succeeded in bringing about devaluation in Nigeria’s currency value as a result of expansionary measures of money supply.
From the above issues, this research work will address the following pertinent questions:
a) What is the impact of money supply on economic growth in Nigeria?
b) How can monetary policy be used such that its intended effects of promoting economic growth are assured?
1.3 OBJECTIVE OF THE STUDY
As a result of the problems highlighted above, the researcher desires to achieve the following objectives;
1. To determine the impact of money supply on economic growth in Nigeria.
2. Recommending ways in which money supply could be used more effectively in achieving its intended effects of promoting economic growth in Nigeria.
14
1.4 HYPOTHESIS OF THE STUDY
The hypothesis is built around objective 1 because it probes into what can be revealed through statistical means while objective 2 involves only making recommendations, this work is interested in testing the hypothesis below;
Ho: money supply has no impact on economic growth in Nigeria over the years.
H1: money supply has impacts on economic growth in Nigeria over the years.
1.5 SIGNIFICANCE OF THE STUDY
This research work will help us to investigate into the beneficial effects of the control of money supply especially its impacts on economic growth in Nigeria. It will also add to the existing knowledge about the relationship between money supply and inflation in Nigeria.
It will equally help students, government, policy makers and corporate bodies in areas relating to monetary policy, the volume of credit to be supplied and economic growth stabilization. The implication of this is not farfetched as research in the field could lead to a proper and more focused policy formulation, which would yield much better results.
1.6 SCOPE OF THE STUDY
We rely on the secondary data for this study of which the sources are the Central bank of Nigeria (CBN) statistical bulletin 2009 and 2010 versions. The
15
research work centers on the impact of money supply on economic growth in Nigeria from 1981 – 2010, It is expected in course of this study that the researcher will examine and appraise the stock of money supply and its impacts with regards to growth in the Nigerian economy.
DISCLAIMER: All project works, files and documents posted on this website, UniProjectTopics.com are the property/copyright of their respective owners. They are for research reference/guidance purposes only and some of the works may be crowd-sourced. Please don’t submit someone’s work as your own to avoid plagiarism and its consequences. Use it as a reference/citation/guidance purpose only and not copy the work word for word (verbatim). The paper should be used as a guide or framework for your own paper. The contents of this paper should be able to help you in generating new ideas and thoughts for your own study. UniProjectTopics.com is a repository of research works where works are uploaded for research guidance. Our aim of providing this work is to help you eradicate the stress of going from one school library to another in search of research materials. This is a legal service because all tertiary institutions permit their students to read previous works, projects, books, articles, journals or papers while developing their own works. This is where the need for literature review comes in. “What a good artist understands is that nothing comes from nowhere. All creative work builds on what came before. Nothing is completely original.” - Austin Kleon. The paid subscription on UniProjectTopics.com is a means by which the website is maintained to support Open Education. If you see your work posted here by any means, and you want it to be removed/credited, please contact us with the web address link to the work. We will reply to and honour every request. Please notice it may take up to 24 – 48 hours to process your request.
