I. INTRODUCTION The relationship between money supply and economic growth has been receiving increasing attention than any other subject matter in the field of monetary economics in recent years. Because of the importance of economic growth among the macro-economic objectives of nations (developed and developing), persistent concern has always been given among monetary economist including Mckinnon (1973), Shaw (1973), Fry Mathieson (1980), Odedokun (1997), Levine (1997) and Asogu (1998) to the relationship between money supply and output. Economists differ on the effect of money supply on economic growth. While some agreed that variation in the quantity of money is the most important determinant of economic growth, and that countries that devote more time to studying the behaviour of aggregate money supply rarely experience much variation in their economic activities (Handler 1997). Others are Skeptical about the role of money or gross national income Robinson (1950, 1952). Kuznet (1955) supports the view that financial markets start growing as the economy approaches the intermediate stage of the growth process and develop once the economy becomes matured. This connotes that economic growth stimulates increased financial development. Steve (1997) and Domigo (2001), explain that there may not be possibility of economic growth without an appropriate level of money supply, credit and appropriate financial conditions in general. Evidence in the Nigerian economy has shown that since the 1980’s some relationship exist between the stock of money and economic growth or economic activity. Over the years, Nigeria has © Kamla-Raj 2010 J Soc Sci, 22(3): 199-204 (2010) Money Supply - Economic Growth Nexus in Nigeria M. S. Ogunmuyiwa* and A. Francis Ekone** *Department of Economics, Olabisi Onabanjo University, P.M.B. 2002, Ago- Iwoye, Nigeria E-mail: misego@yahoo.com **University of Ibadan, Ibadan, Nigeria E-mail: frankene 2001@yahoo.com KEYWORDS Money Supply. Financial Development. Interest Rate. Economic Growth ABSTRACT This paper investigates the impact of money supply on economic growth in Nigeria between 1980 and 2006. Applying econometric technique-O.L.S.E, causality test and E.C.M to time series data, the results revealed that although money supply is positively related to growth but the result is however insignificant in the case of GDP growth rates on the choice between contractionary and expansionary money supply. been controlling her economy through variation in her stock of money. Consequent upon the effect of the collapse of oil price in 1981 and the B.O.P deficit experienced during this period, various methods of stabilization ranging from fiscal to monetary policies were used. Interest rates were fixed and these were said to be beneficial to big borrower farmers (Ojo 1989). Ikhide and Alawode (1993) while evaluating the effect of Structural Adjustment Programme (SAP) concluded that reducing money stock through increased interest rates would lower gross National product. Thus, the notion that stock of money varies with economic activities applies to the Nigerian economy (Laidler 1993). The output development and other economic growth process (via interest rate deregulation) in the Nigerian economy calls for considerable test of the validity of Friedman and Mieselman (1963) work on the Nigerian economy. The implication of the stability of the relationship between money and economic growth will show the effectiveness of monetary policy following the conventional Hicksian IS-LM analysis. This paper thus aims to investigate the relationship as well as determine the impact of money supply on economic growth. The scope of the study is between 1980 and 2006 and the paper is divided into four sections. Section I is the introduction while section II is on review of past studies. Section III houses the methodology while section IV centers on empirical results and discussion of findings. Section V is the concluding remarks. II. REVIEW OF RELATED LITERATURES As already explained money supply exerts considerable influence on economic activity in