The study examines the impact
of inflation on economic growth of Nigeria. Other micro economic variable
tested along with inflation in this study are Agriculture, manufacturing, and
trade. In analyzing the data the simple percentage method was applied the
empirical results demonstrated that there is a positive relationship between
the dependent variable (agriculture and trade) and explanatory variable except in
The relationship between inflation and economic growth is one, which many
economists have watched with keen interest. Producers in the production sector
cash on this phenomenon to make a brisk business sat the expense of fixed
income earners. This informs the increase in turnover in inflationary periods.
Money economy gave rise to inflation, which reduces the living standard of the
people and the level of saving dwindles in turn. The effect on economic growth
is dependent on the level of economic activity going on. If there are more
producers, there are likely to be an increase in the level of economic growth
In all, inflation do not wish any economy well, so should be eradicated by a
deliberate effort. Nigeria has intellectuals that are capable of formulating
good monetary and fiscal policies that will benefit her. Aside economic
viewpoint, inflation devastates social, health and educational, infrastructure,
it should be discouraged in our system.
CHAPTER ONE: INTRODUCTION
Background to the study
Statement of problems
Purpose of study
Scope of study
Limitation of study
Definition of terms
The significance of study
of various types of inflation
effects of the various types of inflation
in Edo State
of inflation in the locality
adopted in controlling inflation
Illustration of data
and analysis of data
presentation of analysis
BACKGROUND TO THE STUDY
The word inflation rings a bell in the
market economics of the world. It is a monster that threatens all economics
because of its undesirable effects. The problem of inflation surely is not a new
phenomenon. It has been a major problem in
the country over the years. Inflation is
defined as a generalised increase in the level of price sustained over a long
period in an economy (Lipsey and Chrystal, 1995). Inflation is a household word in
many market oriented economics. Although several people, producers, consumers,
professionals, non-professionals, trade unionists, workers and the likes, talks
frequently about inflation particularly
if the malady has assumed a chronic character, yet only selected few knows or
even bother to know about the mechanics and consequences of inflation.
After an appreciable economic performance in the early 1970s, the Nigeria economy witnessed some
anxious moment in the late 1970s to mid 1980s. Severe pressures built up in the
economy mainly because of the expansionary fiscal policy of the federal government
during these years. This was accompanied by high monetary expansion as the huge
government deficit was financed largely by the Central Bank of Nigeria. This was exacerbated by the
transfer of government sector deposits to the banks and the resultant increase
in their free reserves with adverse consequences on the general price level.
The inflationary pressure was further aggravated by high demand for imports of
both intermediate inputs and consumer goods due to over valuation of the naira
which made imports relatively cheaper than locally manufactured goods. In this
case, the impediments to development may be referred to as cost. Economics
theory, however, postulates that for the profit to be maximised, cost should be
minimised. One of the main cost is inflation,
which has turned into a canker worm eating deep into the nation’s path of
economic progress. However, as fiscal discipline was restored in the second
half of 1999, the pressures on the exchange rate and domestic prices moderated
significantly. The economy faced renewed pressures and some uncertainty towards
the end of the year as the C.B.N gradually relaxed its tight monetary policy.
Undoubtedly one of the
macroeconomic goals which the government strives to achieve is the maintenance
of stable domestic price level. This goal is pursued in order to avoid cost of inflation or deflation and the
uncertainty that follows where there is price instability (Salam et al, 2006).
The effects of inflation on
economic growth will be examined bearing in mind that a country will grow
faster in real terms if inflation is
reduced to a barest minimum. Perhaps it should be mentioned here that inflation is not incompatable with
STATEMENT OF THE PROBLEM
There is almost a universal
consensus that macroeconomic stability, specifically defined as low inflation, is positively related to
economic growth. Over the years the question of the existence and nature of the
link between inflation and
growth has been the subject of considerable interest and debate (Erbaykal and
Okuyan, 2008). Although the debate about the precise relationship between these
two variables is still open, the continuing research on this issue has
uncovered some important results. In particular, it is generally accepted that inflation has a negative effect on medium and long-term
growth (Bruno and Easterly, 1998). Inflation impedes
efficient resource allocation by obscuring the signalling role of relative
price changes, the most important guide to efficient economic decision-making
If inflation is inimical to growth,
it obviously follows that policymakers should aim at a low rate of inflation. But how low should inflation be? Should it be 10
percent, 5 percent, or for that matter, zero percent? Or put in other words, is
there a level of inflation at
which the relationship between inflation and
growth become negative? The empirical test of the impact of inflation on the Nigerian economy
which is the subject matter of this study shall provide precise answer to the
relationship between inflation and
growth and how the problem could
OBJECTIVES OF THE STUDY
The broad objective of this
study is to examine inflation in
developing countries with the view of ascertaining the effect of inflation on economic growth. The
specific objectives of this study are to:
(i) examine the trend of inflation in Nigeria over the years;
(ii) investigate the impact of inflation on
the economic growth of Nigeria;
(iii) Explore the effect of inflation on capital formation in Nigeria;
(iv) Examine the influence of inflation on
(v) Suggest visible solutions to the problem of inflation in the country.
This study would be guided by
the following research questions:
1. What is the trend of inflation in Nigeria?
2. How does Inflation impact
on economic growth in Nigeria?
3. What is the effect of inflation on the level of capital
formation in Nigeria?
4. How does inflation affect
the consumption expenditure of Nigerian households?
STATEMENT OF HYPOTHESES
The hypotheses to be tested in
the course of this study are stated below:
Ho : Inflation does
not affect significantly the economic growth of Nigeria.
H1 : Inflation affect
significantly the economic growth of Nigeria.
Ho : Inflation does
not affect significantly capital formation in Nigeria.
H1 : Inflation affect
significantly capital formation in Nigeria.
Ho : there is no significant relationship between inflation and consumption
expenditure of people in Nigeria.
H1 : there is relationship significant between inflation and
consumption expenditure of people in Nigeria.
THE SIGNIFICACE OF STUDY
The effect of inflation on the economic development of Edo state
cannot be over emphasized; therefore, this research work is designed to find
out the problem facing the inflation, causes, effect and solutions.
SCOPE OF THE STUDY
This work is to cover the effects of inflation and
economic development in Edo state between 1993 to 2003 (a decade) and also
various ways in which the scourge has been controlled by the various
administration and relevance of control model or methods.
DEFINITION OF TERMS
Inflation can be defined as any increase
in the money supply; however this can be regarded as inflation. This can also
be seen as persistent in average price level of goods and services resulting in
diminishing purchasing power of a governmental sum of money. Also when the
volume of money in circulation is greater than the available goods and services
so that there is a continuous tendency for average price level rise.
TERMS AND CONDITIONS APPLY
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