The study examines the effect of macroeconomic policies on economic growth in Nigeria.
The study used secondary method. The instruments used to determine the level of economic growth is the gross domestic product, while for the macroeconomic policies are monetary policy rate, broad money supply, government expenditure, tax, and non-oil revenue.
The study revealed that; there was a positive relationship between monetary policy rate and real gross domestic product in the long run; A unit increase in monetary policy rate would result to a proportionate increase in the real gross domestic product; there was a positive relationship between broad money supply and economic growth in the long run; Tax and real gross domestic product were seen to have a positive relationship; Government expenditure and economic growth were seen to have a negative relationship; There was a positive significant relationship between oil revenue and real gross domestic product; the variables, broad money supply, government expenditure, tax and oil revenue had a statistically significant relationship with economic growth.
The study concluded that macroeconomic policy had played a germane role in providing and as well as maintaining sustainable and acceptable economic environment which makes it possible for an economy to achieve a faster, stable and sustainable growth. According to this study, variables such as monetary policy rate, broad money supply, tax, non-oil revenue, and oil revenue, had a significant relationship to the economic growth which has been the most veritable and effective tools in stimulating economic growth in Nigeria over the years, while government expenditure had a negative effect with economic growth.
The study further recommended that; policy makers should ensure a balance budget, and to work more strongly with the monetary authority without jeopardizing their autonomy; policy makers should ensure that the suitable macroeconomic policies are formulated and implemented towards promoting the economic growth and development; by putting in place good fiscal and monetary policies, this will ensure that the various sectors in the economy are managed properly in order to drive investment and enhance economic growth; the monetary authority should give attention to the regulation of money supply through the open market operation and selective credit; more balanced however supple approach should be adopted towards the monetary policy rate in order to give more room for impressive economic growth in Nigeria.
1.1 Background of the Study
The main macroeconomic objective of every country is to achieve price stability, full employment and favorable balance of payment. This can be achieved through the use of macroeconomic policies which are mainly monetary policy, fiscal policy and supply side policy (Campbe1l, 2002). For the p1u°pose of this study we would evaluate the relationship between these policies and economic growth in Nigeria.
Economics meister before the great depression (1929-1939) did not support government playing any important role in economic decision making until the arrival of James Maynard Keynes who proposed that the forces of demand and supply cannot resolve this problem but rather there is need for government intervention. Keynesian proposes the use of fiscal policy to stabilize the economic activity in a country.
Fiscal policy involves the management of government revenue and expenditure in other to achieve certain macroeconomic' objectives, some of these macroeconomic objectives have been previously stated (price stability, full employment and favorable balance of payment). The two major components of fiscal policy in Nigeria are government expenditure (capital and recurrent) and revenue such as tax, oil revenue and non-oil revenue (Ojabello, 2017). In Nigeria, fiscal policy is an important economic tool used by the government to distribute and redistribute income and welfare. “Undoubtedly, fiscal policy is central to the health of any economy, as the power of government to tax and to spend affects the disposable income of citizens and corporations, as well as the general business climate” (Abata, Kehinde & Bolarinwa, 2012). One of the tools of fiscal policy that was used by the government to influence growth is public spending that is government expenditure, the government expenditure can be classified mainly into recurrent and capital expenditure. In Nigeria recurrent expenditure includes expenditure use for maintaining work force (salaries and allowances) while capital expenditure includes construction of schools, highways, hospitals etc. (Anthony, Edeh, & Wilfred, 2015). The Keynesian analysis indicates that there is a positive relationship between government spending and economic growth. Fiscal policy is used in gearing the economy towards achieving a variety of economic transformation such as economic growth and sustainable development, price stability, reduction in unemployment, extemal equilibrium as well as income redistribution (Abdulrauf, 2015).
On the other hand the Monetarist believes that monetary policy is more capable of driving the economy towards sustainable economic growth and development compared to fiscal policy. Monetary policy is a deliberate action by the government through the Central Bank of Nigeria with the objectives of influencing the variables in the real sector of the economy for the purpose of achieving sustainable economic growth and development (Gbadebo, 2015). Monetary policy instrument includes monetary policy rate, liquidity ratio, selective credit control, and cash reserve ratio. The Monetarist advocates that Monetary policy have greater impact on economic activity as unanticipated change in stock of money affects output and growth, i.e., the stock of money must increase unexpectedly for central bank to promote economic growth.
The monetarist castigated fiscal policy citing the possibility that an increase in government spending might crowd out the private sector and such can outweigh any short term benefit(s) of an expansionary fiscal policy.
Since the establishment of CBN in 1959, the Central Bank of Nigeria (CBN) has continued to play the traditional role expected of a central bank, which is the regulation of the stock of money in such a way that promotes the social welfare (Charles, 2012). This role is anchored on the use of monetary policy. Evidence in the Nigerian economy has shown that since the 1980s some relationship exist between the stock of money and economic growth or economic activity (Fasanya, Onakoya & Agboluaje, 20l4).Monetary policy from then onwards laid greater emphasis on preventing money from becoming a major source of disturbance in the economy. Excessive monetary expansion is being tackled at all costs, hence the recourse to stabilization securities among other instruments (Ajisafe & Folorunsho, 2002).
Since Independence, the history of economic growth in Nigeria has shown that macroeconomic policies are insufficient in managing economic growth. The main problem is as a result of corruption, mismanagement of fund and inability to diversify the economy. The economic growth of the country is measured in terms of the gross domestic product (Ekine, 2013)
1.2 Significance Of The Study
This study would be of benefit to private individuals, government, researchers and other institutions in Nigeria. First, the federal government of Nigeria would find the outcome of this result useful in terms of making decisions relating to the macroeconomic, that is, it would help the government regulate the exchange rate, interest rate, inflation rate, public spending etc. in other to achieve macroeconomic stability and sustainable development in other to assist companies operating in Nigeria. The Central Bank of Nigeria would find this study relevant in establishing good monetary policy that would encourage foreign investment within the country. It would also be of benefit to private individual/household in other to know when to invest or save their money. Finally, it would be quite useful and pertinent in terms of reference material to future researchers on a similar subject matter
1.3 Statement of Problem
Nigeria like any other 'developing country is faced with some fundamental macroeconomic problems such as unemployment, price instability and fluctuation in economic growth. In year 2018, unemployment rate in Nigeria stood at 23.1% (NBS, 2018), Inflation was 11.4% while economic growth rate witnessed a negative two consecutive quarter in year 2016 bringing the year end growth rate figure to -1.53% (CBN, 2018) which implies that technically; Nigerian economy experienced recession in year 2016. This rate can clearly explain the living standard with respect to the high rate of unemployment, incessant increase in general price level and slow pace of economic growth.
Government through the ministry of finance, office of budgeting and debt management and the Central Bank of Nigeria, have enacted several macroeconomic policies which entails the use of fiscal and monetary tool to improve the level of economic growth which raised the Nigerian economy out of recession and also had a growth rate of 1.93% in year 2018 (CBN, 2018). Monetary and fiscal policy though have played a pivotal role in achieving macroeconomic goal in developed nations but has not been able to adequately bring about the desired level of change Nigerian government seek to witness with respect to growth rate and all other macroeconomic objective. In recent- time, monetary instruments such as the monetary policy rate (MPR) and money supply; CBN single digit funding into real sectors like the creative industry, manufacturing, export etc. has been a veritable tool to access funding for this sector, which will bring about an increase in total output hence economic growth. In the same vein the MPR rate was reduce to 13.5% after the monetary policy committee (MPC) held their meeting in March 2019; which had a significant impact on lending rate, thereby reducing cost of funds. This initiative will encourage more borrowings which will have a significant and positive effect on economic growth. On the fiscal; the recent circular on stamp duty charge tax on POS released in September, 2019 has had a negative impact on citizens. This initiative has pushed the price of commodity while making payment with the point of sales (POS) machine with an additional N50; which can be related to inflation.
Upon review of this macroeconomic policy of monetary and fiscal, and the economic impact; it is very paramount that we study these tool, more importantly instruments like the MPR rates, CBN intervention funds which makes up money supply, other sources of government revenue, etc., which previous studies have not closely examine and how it can be properly harnessed to bring about the desired growth in Nigerian economy.
1.4 Research Question
In other to quench the curiosity for this study, the following questions are raised so as to achieve the objective of this study.
- What is the effect of broad money supply on economic growth
- What is the effect of monetary policy rate on economic growth?
- What is the effect of tax on economic growth
- What is the effect of government expenditure on economic growth
- What is the effect of non-oil revenue on economic growth
1.5 Research Objectives
The general objective of the study is to examine the effect of macroeconomic policies on economic growth in Nigeria. The specific objectives are as follows:
- To examine the effect of broad money supply on economic growth
- To examine the effect of monetary policy rate on economic growth
- To examine the effect of tax on economic growth
- To examine the effect of government expenditure on economic growth
- To examine the effect of non-oil revenue on economic growth
1.6 Research Hypothesis
For the purpose of this study, below is the hypothesis of the study:
H01= Broad money supply has no significant effect on economic growth in Nigeria
H02= Monetary policy rate has no significant effect on economic growth
H03=Tax rate have no significant effect on economic growth
H04= Government expenditure has no significant effect on economic growth
H05= Non-oil revenue has no significant effect on economic growth
1.7 Justification of the Study
Based on the persistent challenges faced by the Nigerian economy, it has become necessary to find and understand .the basic root of this problem and educate people on the importance of macroeconomic policy in stimulating growth and development within the country. The main aim of this study is how to establish the interaction of various macroeconomic policy to achieve sustainable development in a developing country like Nigeria. Despite the fact that Nigeria Is abundantly blessed with Natural resources, the country still have larger percentage of her population living below the poverty gap, this is a result of implementation of wrong policies that would only enrich the rich and replenish the poor, mismanagement of funds by the political leader, inability to diversify the economy.
The implementation of appropriate macroeconomic policy would help to gear the economy towards growth and development. Different findings from various researcher already indicates that some of this macroeconomic policy instrument have a positive relationship with economic growth which can help encourage development while some proposes a negative relationship between this macroeconomic policy instrument and economic growth, this discrepancy among various researchers made this research work important to evaluate the relationship among this policy instrument and economic growth. This research seeks to understand the relationship among this instrument and the growth of the country.
1.8 Scope/Limitation of the Study
The study covers the relationship between monetary and fiscal policies of the Nigerian economy, the time series data used for this study is between 1980-2018. This period was chosen as a result of the availability of data and this data would be generated from the Central Bank of Nigeria (CBN) Statistical Bulletin and World Bank Development Indicators (WDI).During the process of carrying out this study, I was faced with several challenges such as network to access the internet, unavailability of power supply.