Testing for Stagflation in Nigeria: A Non-Linear Autoregressive Distributed Lag (NARDL) Modeling Approach

Résumé

Abstract

This study applied an asymmetric approach to test for the presence or otherwise of stagflation in Nigeria using annual data from 1981 to 2019. The series were subjected to Ng-Perron unit root test and it was found that all the variables were stationary at I(1) except inflation rate which did so at  I(0). The results of the bonds test confirmed the existence of long run relationship among the variables while the error correction model indicated that the variables could revert to equilibrium in any event of a temporary shock. The results of the NARDL indicated that both positive and negative changes in inflation exert positive influence on economic growth. Also, while positive changes in unemployment exert positive and significant impact on economic growth, the negative changes in unemployment were found to have negative and significant impact on economic growth contrary to known economic laws. Finally, oil revenue and real GDP per capita exerted positive and significant impact on economic growth. Thus the study concluded that there is no stagflation but “growflation” in Nigeria especially that positive changes in inflation and unemployment are accompanied by higher levels of economic growth. The study recommended among other things unless Nigeria starts refining her oil for domestic consumption and exports forward and backward linkages for job creation will elude her.  The monetary and fiscal authorities in Nigeria must work together to keep inflation in check since lower levels of inflation tends to boost economic growth more significantly.