Volume 2 | Issue 3 ©2016 IJIRCT | ISSN: 2454-5988 IJIRCT1601014 International Journal of Innovative Research and Creative Technology www.ijirct.org 78 Inflation And Economic Growth Nexus In Nigeria Adamu Jibrilla Department of Economics Adamawa State University Mubi, Nigeria Bawuro, Mohammed Buba Department of Accounting Adamawa State University Mubi, Nigeria Abstract—This study was conducted on the “Inflation and Economic Growth Nexus in Nigeria” using annual time series data from 1961 to 2014. The aim of the study was to determine the relationship between inflation and economic growth in Nigeria for a longer period of 54 years. This study was organized into five different sections. Section I was on introduction, section II was on literature review and empirical literature, section III dealt with the methodology of the study, section IV was on the results and discussions while section V was on conclusion and recommendations. Preliminary tests of stationarity were conducted and the series under investigation were found to be I(0) variables. The study employed the use of Ordinary Least Squares method, Johansen Cointegration method, Error Correction mechanism and Granger Causality method to ascertain both the impact of inflation on economic growth as well as the relationship between the two variables. The result of the OLS regression analysis revealed a negative impact of inflation on economic growth in Nigeria, although the coefficient is statistically insignificant which implied that inflation does not influence economic growth in the country over the sample period. The cointegration test result indicated the existence of a long-run equilibrium relationship between inflation and economic growth in Nigeria. The error correction term was correctly signed and statistically significant which confirmed that the two variables under study converge towards a long run equilibrium relationship but the speed of adjustment appeared to be slow as only 17% of the error was being corrected each year. The Granger causality test result showed that there was no either unidirectional or bidirectional causality between inflation and economic growth in Nigeria from 1961 to 2014. Based on the findings of this study, it was recommended that both fiscal and monetary policy measures be taken to reduce inflation rate in Nigeria. Keywords— Inflation and Economic Growth Nexus I. INTRODUCTION The major objective of macroeconomic policies for every nation is to attain sustainable economic growth together with price stability. The importance given to price stability when conducting monetary policy amongst other things is to stimulate sustainable economic growth as well as strengthening the purchasing power of the local currency. The question of whether or not inflation is detrimental to economic growth has recently been a subject of strong argument to policy makers and macroeconomists. The bone of contention is that whether inflation is necessary for economic growth or it is harmful to economic growth. The effects of inflation on economic growth are more or less certainly biased towards that view that inflation is detrimental to the growth of an economy. Datta and Kumar [5] contend that the rate of economic growth primarily depends on the rate of capital formation and the rate of capital formation depends on the rate of savings and investment. The relationship between inflation and economic growth has been argued in various economic literatures and the arguments appeared to have shown differences in relation with the condition of world economy order. Policies which promote increase in aggregate demand could cause increase in production and inflation too as a consequence. In such situations and periods, inflation cannot be considered a serious problem as it can be regarded as having a positive impact on economic growth. The maintaining of price stability is one of the macroeconomic issues faced by every economy including the Nigerian economy. Moreover, sustainable economic growth along with price stability is the ultimate goal of every economy. Price instability which is being considered as either being Inflation or deflation poses a serious concern to all economic agents. Jhingan [12] defined inflation as a persistent and appreciable rise in the general level of prices. However, a rise in the general price level can only be considered as inflation when it is persistent, continuing and sustained. Demberg and McDougall are much more explicit in referring to inflation as a continuing rise in prices as measured by an index such as the Consumer Price Index (CPI) or by the implicit price deflator for Gross National Product [15]. In an inflationary economy, it is difficult for the national currency to act as medium of exchange and a store of value without having an adverse effect on income distribution, output and employment (CBN, 1984). Inflation is characterized by a fall in the value of the country’s currency and a rise in her exchange rate with other nation’s currencies. This is quite obvious in the case of the value of the Naira (N), which was N1 to $1 (one US Dollar) in 1981, average of N100 to $1 in year 2000 (Okeke, 2000) and over N128 to $1 in 2003. This decline in the value of the Naira coincides with the period of inflationary growth in Nigeria, and is an unwholesome development that has led to a drastic decline in the living standard of the average Nigerian The main thrust of this paper is to empirically examine the long run relationship between inflation and economic growth in Nigeria using the Johansen Co- integration approach and to examine the causality among the variables using the Granger Causality method. The study is organized into five sections. Section I deals with the introduction, section II deals with the literature reviews and empirical studies, section III is concerned with the methodology of the study, section IV is on empirical results and discussion, and section V deals with conclusion and policy recommendations. The need for this study was born out of the desire to know if actually there is a relationship between inflation and economic growth in Nigeria from 1961 to 2014 making about 54 observations which covers a longer period of time and with