IMPACT OF INFLATION ON INVESTMENT AND ECONOMIC GROWTH IN NIGERIA
This study investigated the impact of inflation on investment and economic growth in Nigeria. Since Nigerian financial sector liberalization is anchored on interest rate and exchange rate deregulation and the inflation targeting monetary policy, therefore exchange rate was incorporated in the study. The OLX technique was used in this study to estimate the two models specified in the study. Other tests such as unit root test and cointegration test were conducted to determine the stationarity and long term relationship among the variables. The result of the investigation showed that both inflation has a negative effect on investment level and economic growth but exchange rate has positive effect on investment and economic growth. The study recommends that in order to curb inflation, government should create a conducive employment opportunity, transparency in the fiscal operations to bring about realistic fiscal deficits, exchange policy should be designed to bridge the savings investment gap, enhance government revenue and reduce the fiscal gap in order to ultimately enhance economic growth which will bring about development.
1.1 BACKGROUND OF THE STUDY
One of the greatest problems facing Nigerian economy today is inflation which is persistently a complex, economic and social problem of the economy. Inflation has become a leading topic of discussion in Nigerian families and other countries of the world. Government’s inability to provide a lasting solution to this aroused a universal conviction that inflation is inevitable and created pessimism that government has no power to bring rising price (inflation) trend to an end. Inflation is not only a serious problem but also has a disquieting effect on the economic life, political system and the society as a whole. A situation where the value of money continues to depreciate in terms of value, there is the tendency for rising prices for available goods and services generally and such situation is being referred to as inflation. Inflation can be defined as continuous rise in prices of goods and services. Inflation simply means too-much money chasing few goods. Inflation in the country has become a threat to the Nigerian economy particularly to investment and development.
Inflation, always and everywhere, is primarily caused by an increase in the supply of money and credit. According to American College Dictionary, inflation is “Undue expansion or increase of the currency of a country.” Inflation can also be defined as the sustained increase in the general level of prices of goods and services overtime (Adebayo 1999). The term inflation is often used to describe upward movement in the general level of prices.