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RESEARCHER: ENIDOM AUGUSTINA ONYINYE
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In the critical observation of the recent Nigerian economic
position, there has been a great divergence between the rate at
which money is supplied and the exact impact it has on the
general price level, which results in inflation and deflation on
one hand, and the output growth (productivity) on the other
hand. Although, it had occurred to our mind that Nigerian
monetary policy continues to aim at achieving single digit
inflation, a stable Naira, increase in domestic production and
a stock of foreign exchange reserves equivalent of at least six
months of current imports, the Central Bank of Nigeria (CBN)
relies on Open Market Operation (OMO), Cash Reserve
Operations, Minimum Liquidity Ratio, Discount Window
Operations
(OWO)
etc,
to
control
growth
in
monetary
aggregates, changes in minimum re-discount rate (MRR) to
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determine interest rates, and a Dutch Unction system to
determine the value of the Naira (See Anyanwu, 2003).
However, the CBN publications have proved that since
2003, the monetary authority is conducting an Open Market
Operation on a daily basis instead of bi-weekly in order to
exert greater control over the country’s (Nigeria) financial
market conditions. Hitherto, monetary aggregates have tended
to overshoot the CBN’s targets due largely to the expansionary
fiscal policies. Then, as a result of this fiscal surplus, in the
first nine months of 2004, annualized growth in broad money
supply (M2) was only 13.2% compared with the expansion of
24% made in 2003 (See CBN Annual Report and Statement of
Accounts, 2003).
In the year 2004, the Federal Government strengthened
the budget process towards an improved expenditure coordination through the introduction of Cash Management
Committee (CMC), whose function was to monitor and
reconcile
monthly expenditure releases,
and
determined
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projects. But in that same 2004, the annual inflation rate was
moderated to an estimated 15.0% in October 2004. The
persistence pressure on prices in 2004 was attributable to the
impact of the partial deregulation of the 2003 monetary
expansion. Since the face of the interest rates remain largely
stable in 2004, it was expected that inflation will follow a
downward trend in 2005, 2006 and 2007, as the continued
improvement in Agricultural production reduced inflation in
food prices, (Source, CBN Annual Report and Statement of
Account, 2003).
Furthermore, from the recent CBN Annual Statement of
Reports under the real sector, it was indicated that the growth
in domestic Product (GDP) measured in 2007 in 1990 basic
prices amounted to N634.1 billion thus, representing a growth
rate of 6.2% compared with 6.0% in 2006. However, output
growth fell below the projected average of 7.0%, estimated for
the five year period 2003-2007. Growth in 2007 was broad
based but driven mainly by the non-oil sector. Agriculture
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grew by 7.4% led by crop production and fishing. Wholesale
and retail trade grew by 15.3% and service(s) subsector by
9.8%. Mining and quarrying as well as manufacturing
however, grew even as electricity consumption declined. The
moderation in inflationary pressure that began in 2005 was
sustained in 2007, attributable largely to good Agricultural
harvest and a non-accommodating monetary policy. Thus, the
single digit inflation target had been sustained two years in a
row. Further expansion in national output was however,
constrained by poor infrastructures, a mild drought and
flooding experienced in some food producing areas.
Available data from the National Bureau of Statistics
(NBS), indicated that the national unemployment rate in the
1st quarter of 2007 was 14.6%, compared with 13.7% in 2006.
The Urban and Rural rates were 14.4% and 15.0% respectively
compared with 10.2% and 14.8% in 2006.
Meanwhile, the reason behind the monetary trends
above, is to understand the lapses in monetary management,
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and having observed the alternations between the rate of
inflation and deflation, it seems as if we had not done enough
work, in regulating the supply of money. Otherwise, we had
found the repeated cases in which people seem to have so little
money that they were unable or certainly reluctant to buy
everything that could be produced. As a result, price fell,
profits vanished, production shrank and
unemployment
spread.
We had also found frequent examples of the opposite
situation, where the inflation spiral in which the quality of
money outruns the supply of goods and people would lose
through being outbid in the market place.
The
whole
mystery
is
centered
on
the
fact
that
commercial bank credit is a major factor contributing to the
increased quantity of money in circulation in the Nigerian
economy. But since the total stock of money determines the
economy level to an optional, the monetary policy target is to
bring the economy back to a desired optimum, but the extent
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to which it achieves that, is however another issue. The
popular notion is that most monetary policies had failed in
Nigeria due to wrong
the
uncooperative
implementation of the policies or due to
attitude
of
the
banks
before
the
consolidation of banks in Nigerian economy in January, 2001.
Therefore, in discussing the concept of money supply and
its impacts, two other issues often come to our mind namely,
the state of inflationary pressure and the unemployment rate.
According to the monetarist “inflation is everywhere a
monetary phenomenon.” Their view was that increase in
money supply in an economy, causes an increase in the
general price level of commodities (inflation) – (Uzoaga, 1981).
Related to the problem of inflation is the issue of
unemployment. Generally, the primary goal of any economy is
to achieve a high level of employment so as to be able to
produce as many goods and services as possible while
maintaining an acceptable level of price stability. Therefore,
the level of output or productivity (real GDP) and employment
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on one hand, and the level of prices on the other hand, has a
common determinant which is the level of total spending.
Thus, we have so far been observing that the control of
money supply could control all the variables that are
obstructed from its targets, such that gross domestic product,
employment, aggregate demand etc, could be controlled in
Nigeria simply by controlling the money supply. This research
work therefore, would review the technicalities involved in the
control of money supply in Nigeria economy.
1.2 STATEMENT OF PROBLEM
A study of this nature is always necessitated by the
existence of certain problems. The major problem that
triggered off this work is the reoccurrence of general price
instability
and
persistent
inflationary
pressures
in
the
economy, in spite of the plethora of monetary policy tools
adopted and applied over the years.
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There is also this problem of general feeling that a
continuous annual rate of money increase will adversely
increase the rate of price level which will directly lead to
inflation, thus, requiring a
inflationary
pressures
policy response. Recently, this
had
succeeded
in
erecting
a
devaluation in Nigeria’s currency value as a result of
expansionary measures of money supply.
From the above problems, this research work is meant
to investigate on these questions viz;
a.
Why has the expansionary and contractionary measures
of money supply adopted by the CBN failed to correct the
problems of high rate of inflation and real Gross Domestic
Growth (GDP) in Nigerian economy?
b.
Are the monetary policy measures adequate in controlling
the rate of economic depression in Nigerian economy?
c.
If measures been adopted were ineffective and inefficient,
what should be the
rightful measures to be taken in order to
promote real GDP Growth in Nigerian Economy?
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Here, the problem can be traced using tables and chart
values of broad money supply (m2), Real Domestic Growth (Yg)
and Fiscal Deficit (FD) in Nigerian economy from past years.
Table 1.0 (Values of MS2, Yg & FD from 1970-1980)
Year
1970
Money Supply
N = Million)
MS2
978.2
Real Gross
(Fiscal
Domestic Growth Deficit) FD
N Million) Yg
4219.0
- 455.1
1971
1.041.8
4715.5
171.6
1972
1,214.9
4802.8
-58.6
1973
1,522.5
5310.0
166.1
1974
2,352.3
15,919.7
1796.4
1975
4,241.2
27.172.0
-427.9
1976
5,905.1
29,146.5
-1090.8
1977
7,898.8
31,520.3
-781.4
1978
7,985.4
29,212.4
-2821.9
1979
10,224.6
29,948.0
1461.7
1980
15,100.0
31,546.8
-1975.2
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35000
30000
25000
20000
Money Supply N =
Million) MS2
15000
Real Gross Domestic
Growth N Million) Yg
10000
(Fiscal Deficit) FD
5000
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
-5000
1970
0
Figure 1.0: Bar Charts representing the values of Broad Money
Supply (M2), Real Gross Domestic Product (Yg) and Fiscal Deficit (FD)
from 1970-1980.
From fig.1.0 above, you can observe that the bar charts
are irregular as a result of some fluctuations. In the broad
money supply (MS2), it is observed that given the reduction in
economic activities as result of reduced aggregate demand, the
government through expansionary measures of money control
supplied excessively to the growth of the economy. Hence, the
continuous rise in money supply in each successive year.
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Likewise, there was successive increase in the real Gross
Domestic growth given the relative increase in money supply
as illustrated in figure 1.0.
The government in order to generate more revenue
(money supply) for economic progress, borrowed constantly
from external countries, and given their dead-weight assets (i.e
unproductive capital assets), they now accumulated
huge
deficits thus, the negative results of the fiscal deficit values
given in fig 1.0
Table 1.1 Values of MS2, Yg and FD (from 1990- 2005)
Year
Money Supply
Yg (Real Gross)
Fiscal
MS2 (N = M)
Domestic Growth)
Deficit (FD)
N=M
1990
68,662.5
267,550.00
-22116.1
1991
87,499.8
265,379.1
-35755.2
1992
129,085.5
271,365.5
-39532.5
1993
198,479.2
274,833.3
-107735.3
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1994
266,944.9
275,450.6
-70270.6
1995
318,763.5
281,407.4
1000.0
1996
370,333.5
293,745.4
32049.4
1997
429,731.3
302,022.5
-5000.0
1998
525,637.8
310,890.1
-133389.3
1999
699,733.7
312,183.5
0285104.7
2000
1,036,079.5
329,178.7
-103777.3
2001
1,315,869.1
356,994.3
0221048.9
2002
1,599,494.6
433,203.5
-301401.6
2003
1,985,191.8
477,533.0
-202724.7
2004
2,263,587.9
237,576.0
-172601.3
2005
2,814,866.1
561,931.4
-161406.3
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350,000.0
300,000.0
250,000.0
200,000.0
Money Supply MS2 (N =
M
150,000.0
Yg (Real Gross) Domestic
Youth N = M
100,000.0
50,000.0
Fiscal Deficit (FD)
0.0
-50,000.0
1990 1991 1992 1993 1994 1995
-100,000.0
-150,000.0
Figure 1.1: Bar Charts representing the values of Broad Money
Supply (M2), Real Gross Domestic Product (Yg) and Fiscal Deficit (FD)
from 1990-2005.
From fig 1.1 above, broad Money Supply (MS2) was increasing
at an increasing rate given drastic reduction in aggregate
demand and economic activities.
Real
Gross
Domestic
Product values
were
equally
increasing given the increase in monetary expansion by the
government.
There were huge deficits accumulated as a result of the
government borrowing excessively from external sources. Also,
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the invested assets were not productive hence, the negative
fluctuations in the fiscal deficit values.
1.3 OBJECTIVES OF STUDY
As a result of the problems stated above, the researcher
desires to achieve the following objectives;
(1)
To determine the impact of money supply on economic
growth in Nigeria.
2.
To trace the transmission of structural shocks among
money supply and its determinants.
3.
Recommending ways in which money supply could be
used more effectively in achieving economic growth in
Nigeria.
1.4 RESEARCH HYPOTHESIS
Based on the available data, this work is interested in
testing out the hypothesis below;
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H0:
The impact of money supply on economic growth in
Nigeria over the years is not significant.
H1:
The impact of money supply on economic growth in
Nigeria over the years is significant.
1.5 SIGNIFICANCE OF THE STUDY
This research work will help us to investigate into the
beneficial efforts on the control of money supply and its
impacts in relation with the level of economic growth in
Nigeria. It will also add to the existing knowledge about the
relationship between monetary policy and inflation in Nigeria.
It will equally help students, government, policy makers
and corporate bodies in areas relating to monetary policy, the
volume of credit to be supplied and economic growth
stabilization. The implications of this is not far- fetched
as
research done in this field could lead to a proper and more
focused policy formulation, which would yield much better
results.
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1.6 SOURCES OF DATA AND ITS SCOPE
We rely on the secondary data for this study of which the
sources are the CBN publications and Annual Report and
Statement
of
Account,
Federal
Office
of
Statistics,
publications, newspapers and students’ research works.
The research work centers in the impact of money supply
on economic growth in Nigeria from 1970
-
2007. It is
expected in course of this study that the researcher will
examine and appraise the stock of money supply and its
impacts with regards to attaining real Gross Domestic Growth
in Nigeria, and the possible means measures of reforming and
controlling these impacts.
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CHAPTER TWO
REVIEW OF LITERATURE
2.1 THEORETICAL LITERATURE
When it comes to considering the relationship between
the state of economic growth and the rate at which money is
supplied, it is clear that a great amount of empirical and
theoretical work remain to be done. With monetary policies
and association of monetary and fiscal policies in determining
the exact influence of money supply, there is a sizeable
literature on which this and further researchers can rely, but
little of this appears to have penetrated the mainstream of
what literature is required in monetary economics.
Although, in case of difficulties in finding much of
existing literature on money supply (as to compare lots on
money demand), policy makers have agreed that the reason
could be the inaccessibility of various channels through which
money is supplied. These channels are shared by the federal
Government Fiscal policies via tax cuts and budget spending
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and the Central Bank of Nigeria’s monetary options. Yet,
having observed
that each of the above-mentioned policies
exert its influence on the quantity of money stock in the
economy, the issue remains the robustness of the surrounding
theories. The support of the government had led to the general
belief by the policy makers, that Central Banks does not take
full control of the quantity of money supplied to an economy.
However, our literature review is centered on the components
and the impacts of monetary policy options in Nigerian
economy.
The first known attempt to define the concept of money
supply in Nigerian economy was done by Roman and Newlyn.
Both monetarists agreed that the definition of money supply
should based on the stage of development of the financial
system and the concept of money adopted which serves as a
working rule for measurement purposes and guided by the
institutional framework of the economy.
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Meanwhile, the supply of money implies the amount of
cash and currencies available in an economy in sufficiently
liquid and spendable forms at any point in time. It is on this
notion that money forms a very important instrument which
can be manipulated as a money stock variable in order to
control money supply in an economy. But, the formation of
money stock in any modern economy have been found to be
more than just currency as the case maybe, but the extent to
which the financial system is developed determines the other
instruments. This is why the Federal Government Monetary
Management
(FGMM)
basically,
is
to
influence
macro-
economic variables and the use of appropriate instruments
which vary between developing and developed countries.
Money supply can also be defined as the sum of all the
money holdings of all the members of the society. This could
be either M1 or M2 in Nigeria, M1, M2 and M3 in United
Kingdom (UK) or M1, M2, M3 and M4 in United States of
America (USA).
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The M1 is a narrow measure of money supply. It focuses
on the role of money as a medium of exchange and defines
money as “currencies in circulation (notes and coins) outside
the banks plus demand deposits held in banks = C+DD. The
Central Bank of Nigeria defines M1 as currencies outside
banks plus privately held demand deposits. M2 is a broad
measure of money supply. It include
savings and time
deposits held in commercial banks. It been defined by the CBN
as M1 plus quasi-money (i.e. time and savings deposit) = C +
DD for M1+ SD + TD for M2. The argument for including time
and saving deposits of commercial banks is that they can be
converted into cash at short notice and used to carryout
financial transactions. M3 comprises of M1 and M2 plus
deposits held in other financial institutions including finance
houses merchant banks and similar institutions (i.e. C + DD
for M1 + SD + TD for M2 + Dx for M3). The arguments
supporting M3 is the same for M2 (i.e. it can be converted to
cash within a short notice). M4 comprises of M1, M2, M3 plus
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investment in government bonds and securities such as
Treasury bills & certificates, call money etc. the arguments for
including the government security is that they are easily
cashable which makes them influence the spending habit of
its holders in the same way a bank deposit does.
Although money has been discussed as M1, M2, M3 and
M4 above , they are all not recognized in Nigeria as the CBN
only recognized M1
and M2 as the total Nigeria’s money
supply. This is because the country’s financial markets are
still not relatively developed.
Another type of money supply is the base money
identified as M0. It comprises of all currencies in circulation
and all reserves of banks including the Central Bank. It is a
high powered money used in creating other types of money.
A monetary Economist argued that a general reduction in
interest rate would increase the availability of consumer goods
as well as investment credit. Hence, the reduction of
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government expenditures would offset the effects of this
increase.
In similar manner, another monetary Economist had his
own view concerning the monetary policy effects. He said that
since the Nigerian money market is still underdeveloped, the
instruments of monetary policy could not possibly be a better
measure for combating inflation in Nigeria. Therefore, his
opinion has formed a conclusive aspect of little but well
researched literature gathered for the purpose of completing
the knowledge of money supply. Though, there exist other
related
theories,
our
interest
is
to
form
a
coherent
understanding on what previous writers had said concerning
the rate at which money is supplied, its components and the
prevailing impacts to an economy.
2.2 EMPIRICAL LITERATURE
The empirical works of this study were conducted in
determining the exact relationship between the rate at which
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money is supplied and its influence on the general price level
as well as economic growth. Such relationships and proper
control of monetary phenomenon have created a lot of
controversy among the monetary Economists.
After much divergent arguments done on the control of
monetary phenomenon, we were able to learn that through
more plausible (reasonable) and theoretically supported routes
of most monetarists, that an increase in the money stock will
have little or no effect on real output and employment in the
long run, but will merely raise the price level thereby resulting
in potential inflation (see Nwobodo, 1973).
Although the monetary Economists in the later years
have attempted to identify the determinants of money supply
while
some
scholars
believed
that
money
supply
is
exogenously determined by the Central Bank of the economy,
yet others outside these scholars had argued that the supply
of money is an endogenous variable (see Culbertson, 1972).
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Culbertson established the constituents of money supply
including M1 and M2 and their constituents. Their definitions
he ascertained, is the standard definition in many developing
countries with underdeveloped financial infrastructures.
Anyanwu (1998, supported the fact that the development
of the financial market determines the definition of money
supply to an economy.
In addition, the impact of money supply on inflationary
spiral has never been left out. According to Griffiths (1976),
inflation is the result of excess demand and should be brought
under control by removing the excessive demand through a
reduction in the growth of money supply which automatically
reduces the growth of prices and wages as well, through
monetary policy contractionary measures.
Odozi (2001) argued that monetary authorities
avoid
discretionary
monetary
policy,
but
should
should
adopt
monetary growth principles that will alleviate the public
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skepticism about the possibilities of inflationary monetary
policy in future.
Hogger (1964), believes in the theory of the total absence
of money and monetary inflation in combating inflation. To
him, once there is a tendency towards capacity shortage in an
economy, it tends to produce inflationary effects which cannot
be ignored, if the problem of inflation is persistent.
What are needed are measures that will maintain
investment deposits and reduction in the growth of income.
The most direct way to accomplish these desired result would
be to reduce interest rate and government expenditure.
Fisher (1932), argued Ceteris Paribus that as the money
supply changes, the price level and output changes likewise
the value of money (purchasing power). To him, the effects of
money supply on price level are shown by the following
equation:
P
=
M + M 1 V1
T
where
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M + M1
=
Provide the volume of economic
activities
T
=
The total amount of goods and
services traded with money.
V
=
Velocity
P
=
The price level
Keynesian Economics showed that the monetary policy
could be used to control aggregate demand and output in the
short-run, but does not provide the effects of changes in
money stock on output quantitatively.
Milton Friedman argued that the supply of money is
independent of the demand for money. He observed that
bearing the development of hyperinflation, only wealth is the
variable likely to cause significant changes in velocity (see
Jhingan, 2001).
Generally, in assessing the use of monetary policy,
through empirical research, in controlling money supply in
Nigeria,
Ojo
and
Adedumi
considered
monetary
policy
formation as the most important active policy of Central Bank
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because of its impact on economic development and welfare of
all. They concluded that the greatest problem of attaining the
policy objectives in Nigeria is the government’s over increasing
expenditure from year to year, which is contradictory to the
objective of dampening inflationary pressure in the economy.
Hence, it is a priority expected that money supply in the
Nigerian economy would be positively correlated with GDP and
the general price level.
In conclusion, we have succeeded in reviewing some
related literature of some persons of the subject matter in the
Nigerian economy and this will go a long way to educate on the
achievement of monetary policies, the appropriate measures of
money supply and control of its negative impacts towards
achieving the macro-economic goal of Nigerian sustainable
growth.
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2.3 MEANING OF MONETARY POLICY
Monetary policy refers to the combination of measures
designed to regulate the volume, supply and cost of money in
an economy in conjunction with the expected level of economic
activities. An excessive supply of money would result in an
excess demand for goods and services, which would lead to
rising prices or a deterioration of the balance of payment
position. On the other hand, inadequate supply of money
could induce deflation which leads to stagnation in the
economy thereby retarding growth and development (see
Solow, R.M. 1979).
Consequently, the monetary policy authorities must
attempt to keep the money supply growing at an appropriate
rate so as to secure a sustainable
maintain internal/ external
economic growth and
stability. The discretionary
control of money stock by the monetary authorities thus
involve the expansionary or contractionary measures of money
which influences the interest rate in order to make money
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cheaper or more expensive, depending on the prevailing
economic and thrust of policy.
2.4 OBJECTIVES OF MONETARY POLICY
According to some renowned economic
authors like
Anyanwu, Jhingan and Okpara, they agree on the general
objectives of monetary policy which are as follows;
 Maintenance of general price stability so as to restore
confidence and maintain international competitiveness.
 Achievement of a high, rapid and sustainable economic
growth thus, raising the general standard of living of the
Nigerian masses.
 Maintenance of exchange rate stability in Nigeria
 Achievement
of
a
high
balance
of
payment
(BOP)
equilibrium in Nigeria.
 Ensuring that the rate of inflation in Nigeria is at its lowest
possible level.
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2.5 MONETARY POLICY FORMULATION IN
NIGERIA
In formulating monetary policy, the CBN relies in the
techniques of financial programming whose starting point is a
comprehensive review of economic recent performance such as
the current and anticipated economic problems. Projections
are usually made on money supply, GDP growth, inflation
rates and BOPs position.
On the basis of optimum money supply, the economy’s
absorptive capacity for domestic credit is derived so as to
permit growth targets which would act as determinants for key
policy variables of money supply and aggregate domestic
credit. This domestic credit is then allocated between the
public and private sectors. The size been allocated to the
public sector is been determined by the size of the fiscal deficit
to be financed by the banking system. The residual is been
allocated to the private sector.
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2.6 DETERMINANTS OF MONEY SUPPLY IN
NIGERIA
The supply of money in Nigeria based on its composition,
appears to be determined basically by the behavior of three
main economic factors. First, is the behavior of the banks
concerning the amount of reserves that they decide to keep at
any point in
time. This amount given the fact that banks
maximize profit in the long run, is influenced by the bank’s
foresight and their perception of the economic activities
surrounding them. Secondly, the behaviour of the non – bank
public in dividing their money between currency and demand
deposits. The larger the non-bank public’s marginal currency
deposits and money supply resulting from it, the larger the
monetary base or high – power money.
The monetary authorities in their decision to change the
size of high powered money and in their right to set the legal
reserve, uses the following instruments of money which can be
direct or indirect.
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The direct tools include;
 Aggregate credit ceiling
 Exchange control
 Deposit ceilings
 Special Deposits or directives
 Stabilization securities
While the indirect tools include;
 Open Market Operations (OMO)
 Cash Reserve requirement (CRR)
 Liquidity Ratio (LR)
 Minimum Rediscount Rate (MRR) or Discount Window
Operation (DWO)

Parity Changes (PC)
 Selective Credit Deposits (SCD)
 Moral Suasion
These direct monetary control tools which had been in
vogue in the year 1960’s and 1970’s were retained in the
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1980’s up to June 1986. They were not only to control overall
expansion but also to determine the merchant banks asset
portfolio, proportion of bank loans going to the proffered
sectors and the total proportion of rural bank deposit granted
as loans to rural borrowers.
However, the prolonged used of the direct tools
had
diverse effects on both the economic and the effectiveness of
monetary policy in Nigeria. Hence, a decision was taken to
change the strategy of monetary management to the indirect
approach involving the use of market-based tools.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
Table 1.0
Recent Value of Money Market Instruments (
Year or
Quarter
Treasury
Bills
Treasury
Certificates
1970
556.0
1971
N
millions)
Certificates of
Deposits
Commercial
Papers
Bankers
Acceptances
236.0
Eligible
Development
Stocks
0.0
0.0
100.9
0.0
616.0
256.0
0.0
0.0
72.6
0.0
1972
616.0
286.0
0.0
0.0
85.
0.0
1973
616.0
286.0
0.0
0.0
18.3
0.0
1974
616.0
286.0
0.0
0.0
30.2
0.0
1975
616.0
228.0
49.8
0.0
118.4
0.0
1976
616.0
652.0
175.4
0.0
139.0
0.0
1977
691.0
900.0
437.3
0.0
110.6
0.0
1978
816.0
1,800.0
248.2
0.0
122.7
0.0
1979
2,119.0
2,310.0
0.0
31.1
0.0
0.0
1980
2,119.0
2,727.6
31.7
120.9
48.1
28.3
1981
5782.0
2307.6
98.9
168.5
73.0
19.4
1982
9782.0
1668.6
93.8
346.2
110.4
21.1
1983
13476.0
4894.0
90.5
419.1
153.3
17.8
1984
15476.0
6413.0
87.4
260.7
156.7
18.5
1985
16976.0
6644.0
-
211.7
218.2
20.3
1986
16976.0
6654.7
14.6
261.9
259.0
17.5
1987
25226.0
6664.1
28.3
1328.3
496.4
8.6
1988
35476.0
6794.6
5.9
38.4
1861.3
668.9
1989
24126.0
6944.6
0.0
11.6
1309.8
737.2
1990
25476.0
34214.6
0.0
3.6
1743.0
953.4
1991
56728.3
34214.6
0.0
0.0
1107.4
1031.6
1992
103326.5
35241.4
0.0
36.5
1575.2
126.7
1993
103326.5
36584.3
10.0
90.8
3371.5
1858.2
1994
103326.5
37342.7
0.0
15.2
5252.5
4660.2
1995
103326.5
23596.3
0.0
48.0
10034.9
8102.4
1996
103326.5
0.0
0.0
104.9
8023.7
12199.9
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
1997
221800.5
0.0
0.0
0.0
13595.3
11756.4
1998
221801.5
0.0
790.3
0.0
7252.2
17473.9
1999
361758.4
0.0
952.8
0.0
20476.4
11971.8
2000
465535.4
0.0
2406.3
0.0
19002.5
31774.9
2001
465535.8
0.0
3624.0
0.0
35377.2
36501.2
2002
584535.8
0.0
2307.5
0.0
37143.5
42622.1
2003
825050.0
0.0
1470.0
0.0
37300.0
32900.0
2004
871577.0
0.0
1250.0
0.0
88830.0
41620.0
2005
854828.0
0.0
980.0
0.0
194591.0
41124.0
2006
792358.6
0.0
26500.00
0.0
218745.5
72875.6
2007
1264274.9
46268.1
0.0
2497.9
363369.5
81834.0
Source:
Central Bank of Nigeria’s Statistical Bulletin 2008,
Volume 19; 50 years Special Anniversary Edition.
2.7 NIGERIA FINANCIAL INSTITUTIONS
The Nigerian financial system has witnessed rapid growth
in the number of participating institutions including the scope
and
services
rendered.
It
comprises
of
the
regulatory
authorities, banks, non bank financial institutions and
markets. The regulatory authorities whose role is crucial for
the functioning and orderly development of the financial
system include;
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
 The Federal Ministry of Finance (FMF)
 CBN (Central Bank of Nigeria)
 NDIC (Nigeria Deposit Insurance Corporation)
 SEC (Securities and Exchange Commission)
 NAICOM (National Insurance Commission).
 FMBN (Federal Mortgage Bank of Nigeria)
 NBCB (National Board for Community Banks)
2.8 OBJECTIVES OF NIGERIAN FINANCIAL
INSTITUTIONS
In an attempt to formulate certain broad general
objectives for the financial system in terms of the promotion of
rapid economic and social development, the Committee on the
Nigerian financial system (1976), was of the view that the
banking finance system should achieve the following aims;
 Facilitate effective management of the economy
 Provide non-inflationary support to the economy
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
 Achieve greater mobilization of savings and its efficient and
effective channeling.
 Ensure that no viable project is frustrated simply for lack of
funds.
 Insulate the economy as much as possible and as much as
is desirable, from the vicissitudes of the international
economic scenes.
 Effectively sustain the indigenization (ownership control
and management) of the economy.
 Assist in achieving significant transformation of the rural
sectors.
 Assist in achieving greater integration and linkages in
Agriculture, commerce and industry.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
2.9 SIGNIFICANT DEVELOPMENTS IN THE NIGERIAN
FINANCIAL IN RECENT TIMES
Some of the witnessed significant transformations in the
recent Nigerian financial system include the following:
 The promulgation of CBN Decree 24 of 1991 which
withdraws the autonomy of the Central Bank and places it
under the supervision of the Federal Ministry of Finance.
 The
promulgation
of
the
bank
and
other
financial
institutions Decree 24 of 1991 which placed more financial
institutions under the supervision of the CBN.
 The promulgation of the failed Banks (Recovery of Debts)
and financial malpractice in Banks, Decree no 18 of 1994,
which has the responsibility to undertake the prosecution of
bank officials and others who contribute to the collapse of
banks.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
 The promulgation of the money Laundering Decree no 3 of
1995 which primarily is to present re-cycling of drug
money.
 The increase in the share capital of banks (both commercial
and merchant to N500 million effective from January,
1997).
2:10 THE
IMPACTS
OF
MONEY
SUPPLY
IN
NIGERIA
ECONOMY
A critical study of the statistical records of the ultimate
policy goals of Nigerian economic position revealed that the
annual records of the general price level had steadily decline
too since 1980. Certainly, the unsatisfactory nature of the
economic position has been attributed mainly to the policy
implication and inefficiency /ineffectiveness in executions of
the monetary policies.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
From statistical records of the history of Nigeria in
1980s’, some of the positive impacts of money supply then
were;
 It increased the volume of money in the economy due to
excessive revenue generated during the oil boom.
 People held large amounts of money in their hands which
increased their level of spending.
 There was increase in investment in capital projects that
yielded huge returns to its investors.
 There was optimal allocation of scarce resources among
sectors of the economy.
 It helped increased economic productivity in Nigeria.
Notwithstanding the advantages obtained as a result of
expansionary measures of money by the CBN, there were
greater negative impacts. They include;
 The existence of price instability as there were constant
price fluctuations of goods and services.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
 There was inflation even up to date
 The inflationary effects led to the country’s devaluation in
its purchasing power of money. To this effect, the Nigeria’s
currency lost its value as recently, the value of dollar
currency is far higher than the Nigerian currency.
 Productivity and output had declined in Nigeria hence
mitigating the growth of real GDP (Gross Domestic Product).
 There is now capital flight from the Nigerian economy as
less commodities are been produced. In case of available
ones, they are been sold at inflationary prices.
 There is now reduction in the country’s foreign exchange as
other international countries cannot trade with a country
experiencing inflation.
 There is now excessive unemployment rate as the managers
employ the labor force who they can’t pay of their services.
Even the employed vacancies are unstable as the workers
can be retrenched at any time.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
 The value (i.e. purchasing power) of money falls as people
don’t have enough cash to expend on the consumer goods.
This in turn, leads to wastages of the produced commodities
as well as reduction in the producer’s profit or revenue.
2.11 CONTROL OF MONEY SUPPLY IN NIGERIA
To effectively put a curb on supply of credit in Nigeria,
the following measures are necessary;
a)
The expansionary measures
b)
The contractionary measures
The expansionary measures deals with the government
policy to increase the volume of money stock in the economy
given the economic situation at that point in time. This motive
of increasing the money credit makes the government to
increase its expenditure and effect a proper regulation of the
CBN on the Commercial Banks which in turn increases the
economic productivity, output, investment and generally raises
the economic growth of the country.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
On the other hand, the contractionary measures are just
the opposite. It refers to the government policy to increase the
volume of money stock in the economy. They have the motive
of reducing the credit supply by reducing its expenditure and
adopting the reduction regulation
commercial
banks
which
now
of the CBN on the
decreases
economic
productivity, output and investment. This is turn stabilizes the
amount of money stock in the country.
With these expansionary and contractionary measures,
the government of Nigeria through its Central Bank, should
continuously supply that elusive optimal quantity of money
that would support non-inflationary/deflationary economic
growth and promote macro-economic policy (i.e. price stability,
increased balance of payment
 BOPs, favorable terms of
trade  TOT, high level of employment of the labor union,
output growth etc) as excessive money supply leads to
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
inflation whereas excessive reduction in credit supply leads to
deflation.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION
Research methodology covers such areas as research
design, population of study – sample size and sampling
techniques, instruments of data collection and its procedure.
It is a medium used for data collection in order to ensure valid
conclusions made at the end.
This chapter also aims at investigating the methods that
will be used to determine the appropriate measurement of
money being supplied in the economy and its impacts towards
the real per capital growth of that economy. It invariably
serves as a prelude to chapter 4 where the data is presented
and well analyzed.
3.1 INSTITUTIONAL CONSIDERATION
In general, economic research is concerned with the
measurement of parameters of economic relationship with the
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
prediction (by means of these parameters) of the values of
economic variables (Koutsoyiannis 1977).
Based on this, econometric methodology is adopted for
the study in order to establish a simple accurate model. The
choice of this econometric method is necessary since the work
measures the quantity of money supplied and its impacts
towards the economic real gross domestic growth.
3.2 ESTIMATION PROCEDURE
The method to be used for this work is the ordinary least
square (OLS) method because it has the Best, linear, Unbiased
Estimator
(BLUE).
Another
reason
being
that
its
computational procedure is fairly simple compared with other
econometric techniques with data requirements not excessive.
Again, the mechanics of Least Square are simple to
understand. The OLS methods will be used so as to use
figures from several independent variables of monetary tools
and regress than against imputation rate. Then, the computer
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
software package to be used to obtain the results will be PC
Give.
3.3 MODEL SPECIFICATION
The specification of econometric model is based on
econometric theory and on any valuable information relating
to the phenomenon being studied. In doing this, there are
three steps viz;
i.
Determination
of
the
dependent
and
independent
variables
ii.
Theoretical a prior expectation about the size and signs
of parameters of the function and,
iii.
Determination of
the
mathematical
form of model
(Koutsoyiannis, 1997:11)
Hence, the model to be adopted will specifically be based
on the following functional relationship:
GDP
=
F (RER, MS2, RIR)……..3.0
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Equation 3.0 reads that real Gross domestic product
(Real per capital growth) is a function of real exchange rate,
broad money supply and real interest rate. However, to hold
the influence of the random variable, the equation is explicitly
transformed into the following:
GDP = β0 + Β1 RER + β2 MS2 + β3 RIR + Ui
Where:
GDP = Real Gross Domestic Product or growth.
RER
=
Real Exchange Rate
MS2
=
Broad Money Supply
RIR
=
Real Interest Rate
β0
=
Parameter Constant
Ui
=
Error term
In the above equation, GDP (Real Gross Domestic
Product) is the dependent variable (endogenous variable).
3.4 METHOD OF EVALUATION
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
The method adopted for evaluation of the model is the
Multiple Linear Regression of Ordinary Least Square (OLS).
The techniques used in the analysis are;
i)
Sign and Magnitude of parameter: These are suggestions
about the signs of the parameters and possibility of their
sizes. As regard to the magnitude of parameters, the β’s are
either elasticities, propensities or the marginal magnitudes
of economic theory (or are components of these parameters).
ii)
Coefficient of Multiple determination (R2): Here, the
adjusted (R2) will be used to test for the goodness of fit.
The value of R2 lies between 0 and 1. The closer the R2 is
to 1, the better the goodness – of – fit while, the closer the
R2 is to 0, the worse the goodness – of – fit.
iii)
t- test: This is used to find out or test for the statistical
significance of the individual regression co-efficient.
When this is done, the computed or calculated ratio (tcal)
will be compared with the theoretical, tabulated or
critical ratio (ttab) with n-k degree of freedom.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
iv)
f-test:
A test of the overall significance of the entire
regression plane. It is used to denote whether the joint
impact
of
the
explanatory
(exogenous/independent)
variables actually have a significant influence on the
dependent variable.
v)
Standard Error test:
This test helps in the decision
on whether the estimate β0 and β1 are significantly
different from zero. (β0 = 0 and / or β1 = 0).
vi)
Durbin – Watson Test:
This helps to test the validity of
the assumptions of non-auto correlated disturbances.
3.5 DECISION RULE
This is a decision rule taken in order to either accept H0
(null hypothesis) and reject H1 (alternative hypothesis) or
to reject H0 and accept H1, depending on the calculated
values and tabulated ratios.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
 If computed t is higher than the critical (tabular) t value i.e.
if t > t0.025, reject the null hypothesis and if otherwise,
accept it.
 If computed F is higher than the critical value of F i.e. if F >
F0.025, reject the null hypothesis and if otherwise, accept it.
 If (B½) > S (B1), reject H0, if otherwise accept it.
Note:
When you reject the null hypothesis (H0), it means
that the estimate in question is statistically significant, and
when H0 is accepted, the estimate is statically not significant.
3.6 DATA REQUIRED AND SOURCES
In order to ensure an adequate and comprehensive
research, secondary data of real exchange rates, broad money
supply and real interest rates were collected from 1970-2007.
The relevant statistics were sourced or compiled from the
CBN including their statistical Bulletins, Annual Report and
Statement of Account and Economic and Financial Review,
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
CBN
website
on
http.//www.cenbank.org
and
certified
statistics from the Federal National Bureau of Statistics (NBS).
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
CHAPTER FOUR
4.0 PRESENTATION AND ANALYSIS OF RESULT
4.1 PRESENTATIONS OF RESULTS
The estimates from the regression carried out are
presented and evaluated in this chapter. As stipulated in the
previous chapter, the OLS and results of our model were
estimated using a computer software package Pc Give 8.00.
The empirical results are presented in a table which
shows the estimated parameters, their t-statistics and other
diagnostic tests of equation. The result obtained from the
estimation techniques are presented in the table below,
Table 4.1 Modeling Real Gross Domestic Product (Dyg) By
OLS
Variable
Coefficient
Standard
error
t-value
Probability
Constant
-1.7149
1.0763
-1.593
0.1133
DRER
-0.018339
0.025042
-0.732
0.4652
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DRIR
-0.46156
0.12188
-3.787
DM2
1.5405e – 007
2.7449e-006 0.056
0.9553
ECM
1.0319
0.036328
0.0000
28.405
0.0002
The model has the following results:
R2
=
0.854028
F
=
(7,142)
Dw =
=
0.858; RSS
118.68
=
24353.86835 for 8
variables and 150 observations.
4.1.1
ANALYSIS OF RESULTS ANALYSIS
BASED
ON
ECONOMIC CRITERIA
a)
Real Exchange Rate (RER):
The
coefficient
of
the
variable is – 0.018339. This shows that a unit change in real
exchange rate will bring about a 0% change in output growth.
b)
Real Interest Rate (RIR): The coefficient of the variable
is – 0.46156, signifying that a unit change in real interest rate
will bring about 46% change in output growth.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
c)
Broad Money Supply (M2):
The coefficient is 1.5405,
depicting that a unit change in broad money supply will bring
about 54% change in output growth.
4.1.2
EXPECTED AND OBTAINED SIGNS OF
PARAMETER
From result obtained in the regression, the result is
expected to follow the economic a prior expectation of
magnitude and sign. Thus, table 4.1.2.below, analyzes the
outcome of the parameters.
Variable
Expected
Obtained Conclusion
RER
Positive
Negative
Do not conform
RIR
Positive
Negative
Do not conform
M2
Positive
Positive
Conform
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
4.2 ANALYSIS BASED ON STATISTICAL CRITERIA (1ST
ORDER TEST)
4.2.1
The coefficient of Multiple Determination (R2)
This is used to check the goodness – of- fit. From the
regression result, the value of R2 is 0.854028 which implies
that in the Long run, 85% of the variations in real GDP is
explained by the independent variables (real exchange rate,
real interest rate and broad money supply.
4.2.2
Test of Significance of the Parameter (The t-test
Statistics)
The student t-test is used to determine the significance of
the individual parameter estimate and to achieve this, we have
to compare the calculated t-value in the regression result with
the t-tabulated at n-k degree of freedom (df) and at 5%
significance level and will be calculated under the following
condition.
H0:
β = 0 (not significant)
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
H0: β1 (statistically significant)
Where β
=
H0
H0
Coefficient of the parameter
null hypothesis
Alternative hypothesis
Decision Rule: Reject H0 if T-cal > T-tab and accept if
otherwise. From our data, n = 150 and k = 8 hence, dF
k = 150 – 8
=n –
= 142 at 5% level of significance. From
statistical table, critical 70.05
= -1.960
The result of the analysis is summarized in table 4.2
below;
Variable
T – calculated
T-tabulated
Decision Rule
Conclusion
RER
-0.732
-1.960
Accept HO
Not significant
RRIR
-3.787
-1.960
Reject HO
Significant
M2
0.056
-1.960
Accept HO
Not Significant
From the table above, only β3 (RIR) is statistically
significant while β1 (RER) and β2 (M2) are statistically
insignificant. Thus, we
conclude that β3 (RIR) has significant
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
impact on real GDP whereas β1 (RER) and β2 (M2) has no
significant impact on real GDP in Nigeria in the period under
review.
4.2.3
The F – Statistics Test
This test is carried out to determine if the independent
variables in the model are simultaneously significant or not.
Hence, the analysis shall be carried out under the hypothesis
below,
HO: x1 = x2 : xk =
HO:
0 (all slope coefficients are 0)
x1  x2  xk  0 (all slope coefficients are not 0)
Decision Rule: Reject H0 if F – cal > F – tab
Numeration:
Degree of freedom is k-1 = 8 – 1 = 7
Denomination: Degree of freedom
= n-k
142 at 5% level of significance.
Table 4.2.1 below, analyses the result
118.68
2.01
Reject H0
= 150-8
=
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
From the result, since f-cal > ftab i.e. 118.68 > 2.01, we
therefore reject the null hypothesis H0 and accept the
alternative
hypothesis
H1
and
conclude
that
all
slope
coefficients are not simultaneously equal to zero i.e. the
independent variables are simultaneously significant).
4.3 ECONOMETRIC TEST OR 2ND ORDER TEST
4.3.1
Test for Autocorrelation
This test is aimed at ascertaining if autocorrelation
occurred in the model. To achieve this, we assume that the
values of the random variable (vi) are temporarily independent
by employing the technique of Durbin-Watson (Dw) statistics.
Autocorrelation is defined as “correlation between members of
series of observations ordered in time or space”. (Gujarat,
2003: 442).
Decision Rule
d* < dl :
Reject H0 i.e. presence of positive
auto correlation of first order
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
d* > (4-dl):
Reject H0* i.e. presence of negative
autocorrelation of first order.
du < d* < (4-du): Accept H0 i.e. presence of autocorrelation
dl < d* OR (4 – du) < d* <(4-dl): Test is inconclusive.
Where dl =
Lower Limit
du
=
Upper Limit
d*
=
Durbin – Watson (Dw)
dl = 1.637; 4-dl = 4-1. 637 =2.363
du = 1.832
d* = 0.858
Since dl ≥ du ≥ Dw, we reject H0 and conclude that there
is the presence of positive autocorrelation.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
CHAPTER FIVE
5.0 SUMMARY, CONCLUSION AND POLICY
RECOMMENDATION
5.1 SUMMARY
The Objectives of this research work with the topic “The
Impact of Money Supply on Economic Growth In Nigeria” are
to determine the impact of money supply on Nigerian
economic growth, to trace the transmission of structural
shocks among money supply and its determinants and
recommending ways in which money supply could be used
more effectively in achieving economic growth in Nigeria both
in the short and Long run. Using secondary data from 1970
2007, the result of the analysis presents an implication for
real gross domestic product in the country using money
supply.
It is discovered that all the monetary target variables
exerts an insignificant
impact on real GDP in Nigeria except
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
real interest rate. The relationship that exists between the
monetary
instruments and real GDP, sheds more light on the
adoption of credit supply (nominal money) for promoting
economic growth in Nigeria but the combination of monetary
variables like; real exchange rate and broad money supply
may not be effective for the purpose of promoting real GDP, as
the
regression
result
shows
that
they
are
statistically
insignificant.
5.2 CONCLUSION
It is evident from the result that real gross domestic
product is not being influenced by the volume of credit
supplied by the Nigerian Central Bank authority. Hence, the
government should invest in other effective ways of boosting
its economic growth such as; utilizing its solid minerals apart
from crude oil, fostering its domestic production, improving its
infrastructural development etc. This will not only raise the
economic growth but promote the macro-economic policies
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
such as; price stability, increased balance of payment,
favorable terms of trade, high level of employment etc.
5.3 POLICY RECOMMENDATION
Given the potency of promoting real GDP not being a
monetary phenomenon, the following policy recommendations
could be made so as to successively promote and stabilize the
economic growth of Nigeria;
a.
The Nigerian Financial System should be made more
effective in its monetary management by making all
financial markets more sophisticated and organized so as
to accentuate the effects of monetary policy variables like
real exchange rate, real interest rate and broad money.
This promotes real GDP in Nigeria.
b.
Attempts should be made by the government to improve
on its infrastructure in order to reduce the cost of
production and increase exportation so as to achieve the
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
objective of naira devaluation. This adds to the country’s
national income and in general, promote its real GDP.
c.
The Nigerian government should diversify her resource
base so as not to be wholly dependent on oil as its export
earner because the dependency on oil opens her to all
forms of external shocks.
d.
The
diversification
of
the
Nigerian
resource
based
products for exportation should be those products that
would not yield dead-weight-costs, i.e. the domestic
products to be exported should be viable (productive)
enough to yield greater revenue to the government, in
order to help finance its developmental projects.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
BIBLIOGRAPHY
Afolabi, O.L. (1999). Monetary Economics. Nigeria: Heineman
Educational Book PLC.
Anyanwu, J.C. (1993). Monetary Economics, Theory
And Institution. Onitsha: Hybrid Publisher Limited.
Anyanwu, J.C., Oyefusi, A, Oaikhenan, H. and
Dimowo, F.A. (1997). The Structure Of The Nigeria Economy
(1960 – 1997). Awka: Joanne Educational Publishers Ltd.
Central Bank of Nigeria, (2006). Annual Report And Statement
of Account. (December 2006).
Central Bank of Nigeria, (2007). Annual Report And Statement
of Account. (December 2007).
Falegan, S.B. (1978). Instruments of Monetary Policy. Onitsha:
Hybrid Publishers Limited.
Fischer, S. (1979). Rules Versus Discretion in Money Supply.
Onitsha: Hybrid Publishers Limited.
Friedman, M. (1968). The Quantity Theory of Money. London:
Havard Publisher Limited.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
Gujarati, D.N. (2002). Basic Econometrics. Fourth Edition. New
York: Tafa McGrew Hill Companies, Inc.
Jhingan, M.L. (1986). Money, Banking, International
Trade and Public Finance. Delhi: Konorla Publisher.
Johnson, J. (1956). Money and Banking. An introduction to
Analysis and Policy. Santa Barbara: John Willey and Sons.
Nnanna, O.J. (2001). Monetary Management,
Objectives, Tools and The Rule of Central Bank in the
Region. Regional Forum on Economic and Financial
Management for Parliamentarians, Nigeria: WAIFEM.
Odozi, V.A. (1995). The Conduct of Monetary and Banking
Policies By The Central Bank of Nigeria. Central Bank of
Nigeria Economic and Financial Review, Vol. 33. No 1, P. 910.
Ogikhonon, H. and Dimowo, F.A. (1997). The
Structure of The Nigerian Economy (1960-1997). Awka:
Joanne Educational Publishers Ltd.
Ojo, M.O. (1999). A Review And Appraisal Of The
Monetary And Other Financial Sector Policy Measures In
The Federal Government Budget For 1999.CBN Bullion Vol.
24 No. 1. CBN 2000, The Role of Autonomy Of The Central
Bank of Nigeria In Promoting Macroeconomic Stability.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
Taylor, J. B. (1979). Improvement in Monetary Policy
And Implications For Nigeria. A paper presented at the
Keynote Address, Money Market Association of Nigeria,
2004, Abuja, Nigeria.
Uchendu, O.A. (1996). The Transmission Of
Monetary Policy In Nigeria. Central Bank of Nigeria
Economic and Financial Review. Vol. 34. No 2, p. 608.
ENIDOM AUGUSTINA ONYINYE
YEAR
REAL
REAL
GDP (Yg) EXCHANGE
RATE
(RER)
1970
4219.0
0.3249
1971
4715,5
0.3865
1972
4892.8
0.4210
BROAD
MONEY
SUPPLY
(M2)
978.2
1,041.8
1,214.9
REAL
INTEREST
RATE
(RIR)
-7.3
-5.4
7.2
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
5310.0
15,919.7
27,172.0
29,146.5
31,520.3
29,212.4
29,948.0
31,546.8
205,222.1
199,685.3
185,598.1
183,563.0
201,036.3
205,971.4
204,806.5
219,875.6
236,729.6
267,550.0
265,379.1
271,365.5
274,833.3
275,450.6
281,407.4
293,745.4
302,022.5
310,890.1
312,183.5
329,178.7
356,994.3
433,203.5
477,533.0
527,576.0
561,931.4
0.4826
0.6008
0.6267
0.6308
0.6514
0.6475
0.5605
0.5464
0.6100
0.6729
0.7241
0.7649
0.8838
2.0206
4.0179
4.5367
7.3916
8.0378
9.9095
17.2984
22.0511
21.8861
21.8861
21.8861
21.8861
21.8861
92.6934
102.1052
111.9433
120.9702
129.3565
133.5004
132.1479
1,522.5
2,352.3
4,241.2
5,905.1
7,898.8
7,985.4
10,224.6
15,100.0
16,161.7
18,093.6
20,879.1
23,370.0
26,277.6
27,389.8
33,667.4
45,446.9
47,055.0
68,662.5
87,499.8
129,085.5
198,479.2
266,944.9
318,763.5
370,333.5
429,731.3
525,637.8
699,733.7
1,036,079.5
1,325,869.1
1,599,494.6
1,985,191.8
2,263,587.9
2,184,846.1
7.9
2.3
-2.5
0.09
1.3
1.8
-2.2
-2.4
-13.15
2.55
-13.2
-27.1
3.75
5.1
7.3
-21.8
-14.1
18
7.01
-14.7
-38.88
-36
-52.62
-9.56
5.04
8.29
14.72
11.08
-0.61
11.95
6.71
4.18
0.05
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
2006
2007
595,821.6
634,251.1
128.6518
125.8331
4,027,901.7
5,349,253.5
8.69
11.54
THE IMPACT OF MONEY SUPPLY ON ECONOMIC GROWTH
IN NIGERIA (1970-2007)
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
BY
ENIDOM AUGUSTINA ONYINYE
EC/2006/206
DEPARTMENT OF ECONOMICS
FACULTY OF MANAGEMENT AND SOCIAL SCIENCES
CARITAS UNIVERSITY
AMORJI-NIKE ENUGU.
AUGUST, 2010
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
APPROVAL PAGE
This is to certify that, this project was originally carried
out by Enidom Augustina Onyinye and has been read and
approved.
By
……………………….
Dr. F.O. Asogwa
Supervisor
………………….
Date
……………………….
Barr. P.C. Onwudinjo (Esq)
Head of Department
………………….
Date
……………………….
Dr. C.C. Umeh
Dean Faculty of
Management & Social Sciences
………………….
Date
……………………….
External Examiner
………………….
Date
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
DEDICATION
This project work is especially dedicated to Almighty God
who made it possible for me to accomplish this project and
also
gave
me
the
knowledge
and
understanding.
And
wholeheartedly to my lovely mum, Mrs D.O. Enidom and my
late dad, Chief Augustine Enidom.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
ACKNOWLEDGMENT
For giving me life, good health, intellectual capacity, sense of
focus and strength to accomplish this work, I ask that God alone
be praised.
I am also indebted to my ever-consistent supervisor, Dr. F.O.
Asogwa, for always insisting on nothing less than the best. Only
that kind of restriction accorded me the focus to produce a work of
this stature. A good deal of credit for this work goes to my lecturers
in Economics department, especially Mr. Agu S.V, Barr. P.C.
Onwudinjo Esq (HOD), Mr. Ugwu J.O, Mrs Okonkwo, Mr. Ojike, Dr.
Umeadi C.C., Prof. Onah and Prof. Udeabah.
I am equally thankful to my lovely mum, Mrs D.O. Enidom,
my sisters, Ngozi, Chioma, Uju, Uche, my brother, Ikechukwu, and
the entire families of Enidom.
Finally, acknowledgement is due to all my class mates, roommates friends who in one way or the other made my stay in Caritas
University hitch free and memorable, and equally contributed to
the success of this work especially Ubaka and Udengwu Chris. May
God bless you all for me- Amen.
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
ABSTRACT
The study examined the impact of money supply on economic
growth in Nigeria. In the model specified, real gross domestic
product (real GDP) is the regress while real exchange rate,
broad money supply and real interest rate are the regressors.
Data was collected from CBN statistical bulletin for the period
1970-2007. The statistical technique used for the analysis is
the ordinary least square, with the aid of P.C. give 8.00
software package.
The result indicates that the expansionary credit being
supplied in Nigeria within the period under review failed to
influence the real gross domestic product. Real interest rate
being the only significant regressor is not one of the target
variables of monetary policy. It has been identified that the
major problem militating against the poor performance of
monetary policy instruments in influencing real GDP in
Nigeria is time-lags involved which now makes any policy
employed by the government to take many months to achieve
its full effect.
In effect to this, the effectiveness of influencing real GDP in
Nigeria maybe promoted by emphasizing on real interest rate
instead of on monetary target variables due to the fact that
real interest rate is statistically significant.
TABLE OF CONTENT
Title Page
i
…………………………………………………..
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
Approval Page …………………………………………………..
ii
Dedication
…………………………………………………..
iii
Acknowledgement
…………………………………………..
iv
Table of Content
…………………………………………..
v
Abstract
………………………………………….
vi
CHAPTER ONE: INTRODUCTION
1.1
Background of the Study …………………………..
1
1.2
Statement of Problem
7
………………………….
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
1.3
Objectives of Study
………………………….
14
1.4
Research Hypothesis
………………………….
14
1.5
Significance of the Study ………………………….
15
1.6
Sources of Data and Its Scope …………………..
16
CHAPTER TWO: REVIEW OF LITERATURE
2.1
Theoretical Literature
…………………………
17
2.2
Empirical Literature
………………………..
22
2.3
Meaning of Monetary Policy
…………………….
28
2.4
Objectives of Monetary Policy
29
……………………
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
2.5
Monetary Policy Formulation in Nigeria ……….
30
2.6
Determinants of Money Supply in Nigeria ……
31
2.7
Nigeria Financial Institutions …………………..
35
2.8
Objectives of Nigerian Financial ……………….
36
2.9
Significant Developments in the Nigerian
financial Institution in recent times……………
38
2:10 The Impacts of Money Supply in Nigeria Economy
39
2.11 Control of Money Supply in Nigeria ………………
42
CHAPTER THREE: RESEARCH METHODOLOGY
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
3.0
Introduction
…………………………..
45
3.1
Institutional Consideration ……………………….
45
3.2
Estimation Procedure
………………………..
46
3.3
Model Specification
………………………..
47
3.4
Method of Evaluation
………………………..
48
3.5
Decision Rule
………………………..
50
3.6
Data Required and Sources……………………….
51
CHAPTER FOUR
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
4.0
Presentation and Analysis of Result ……………
53
4.1
Presentations of Results
………………………..
53
4.2
Analysis Based on Statistical Criteria
(1st Order Test)
………………………..
56
4.3
Econometric Test or 2nd Order Test …………..
59
CHAPTER FIVE
5.0
SUMMARY, CONCLUSION AND POLICY
RECOMMENDATION
5.1
Summary
………………………..
61
5.2
Conclusion
62
………………………..
RESEARCHER: ENIDOM AUGUSTINA ONYINYE
5.3
Policy Recommendation
63
Appendix
Bibliography
………………………..