There is a general consensus that high Inflation rates and population growth cause problems for aggregate economic performance, although there is much less agreement about the relationship between Inflation, interest rate and economic growth and how it affects economic activities at the macroeconomic level. This research work presents an empirical analysis of Population Growth, Inflation Rate on Nigeria Economy. The research work made use of secondary data collected from Central Bank of Nigeria’s Statistical Bulletin. The empirical measurement covers the sample period between 1982 -2015. This has generated a significant debate both theoretically and empirically. This research aims to investigate of population growth and inflation rate on the economic growth of the Nigerian economy. We use the Ordinary Least Square Method to analyze our data. The result of the study shows that Population growth rate had a negative but insignificant effect on economic growth in Nigeria while inflation rate on the other hand had a negative significant effect on economic growth in Nigeria implying that high inflationary pressures shifts economic growth in Nigeria. We recommend that for Nigeria to achieve sustainable economic growth there is need for government to ensure low and stable price at all times. Hence, when designing economic growth policies critical attention should be given to inflation.
1.1 Background to the Study
The ability and capacity to increase the level of production of quality service and tangible goods, is pertinent to the growth of any economy. Economic growth can therefore be viewed as an increase in the Gross Domestic Product (GDP) of a particular country. Inflation and population growth are essential macroeconomic variables capable of changing, transforming and redirecting the growth pattern of a country’s economy. One of the major macroeconomic objectives of any country (Nigeria inclusive) is to have a sustained level of economic growth combined with low levels of Inflation and a reasonable level of population growth. Hence the behaviours’ of both Inflation rate and population growth to a large extent affect the economic growth of a country Okpe, (1998).
According to Jayathileke & Rathnayake (2013) cited in Babalola, Danladi, Akomolafe, Ajiboye, (2015), most developing countries (like Nigeria), are easily affected by supply shocks which leads to high variability in inflation hence disturbing the consumption, investment and production behaviour. However, due to government intervention in the financial and goods markets, macroeconomic reactions may cause economic instability and market failure. Although mild inflation is a healthy and natural phenomenon of any developing economy, no matter how strong and stable it may be Aurangzeb & Haq, (2012). Thus it could be said that a slight inflation is “greasing the wheels of commerce.”
The risk attached to this is that stable prices and zero inflation rates might trigger deflation, economic depression, general recession, technical insolvency and even bankruptcy.
Economists have diverse views about the concept of inflation. The monetarists opined that inflation is harmful to economic growth while the structuralists argue otherwise. Therefore existing literature opined that relationship of economic growth with inflation can either be positive or negative as the case maybe (Ahmed & Mortaza, 2005).
However, interest rate is another macroeconomic growth factors (as earlier identified), it’s up and down volatility is closely related with inflation rates. Its high or low rates also impact the economic prosperity and extending to influence economic growth rate. In business fields, it is very important to accurately predict interest rate trends.
Maintaining price stability and growth together in an economy is one of the central macroeconomic policy objectives of most developing countries in the world today. In order to promote economic growth and strengthen the purchasing power of the domestic currency for the Nigerian economy, emphasis has been laid by the Central Bank of Nigeria on maintaining stability in prices through the use of expansionary or contractionary monetary policy, (Umaru & Zubairu, 2012).
The consequences of population growth and inflation rate on the economic development of less developed countries are not the same because the condition prevailing in these countries are quite different from those of developed economy. Therefore the body of literature on population growth and inflation rate in Nigeria has always emphasized either the negative or the positive effect.
Therefore in every discussion, it is conventional to start with a definition of terms used in such discussion. However, population growth can be seen by a demographer as a change in the size of the population. But when this change occurs in such a way that it reduces the size of population, the demographer refers it as a negative growth but when it adds to the size of the population he regards it as a positive one. What we get from this concept is that population growth can be positive or negative depending on whether there is an increase or decrease in the size of a given population. Population whether positive or negative is derived from three demographic variables such as birth, death and migration rates. Udabah (1999) threw more light on this by adding that birth and death rates in underdeveloped countries are quite different from that of developed countries. Births rate in underdeveloped are generally high, why those of developed countries are low. On the other hand, death rates are higher in underdeveloped nations. The higher rate of population growth is therefore a major characteristic of underdeveloped nations and is partly responsible for the low rates of economic development.
Moreover, the population of any country constitutes the most vital component of its resource base. This aspect is based mostly on its size, growth rate, spatial distribution, demographic structure and quality in terms of level of education, fitness and social welfare. Population statistics are indispensable impute into the planning process in any area. To government issuing programmes for instance in the efforts of government in the developing countries to feed the people and also provide quality services for them are being frustrated by rapid population growth. This growth is attributable on the one hand to improvement in human survival associated with the application of modern medical science to health matters, better sanitation and immunization of children which have caused the death rate to decrease.
On the other hand, so many socio-cultural issues have complimented the growth of population in Nigeria positively (Ainsword et al., 1996).Consequently, the world population has been increasing and the last two decades have been demographically unprecedented as it rose from 4.2 billion people in 1985 to 6.4 billion in 2010. Much of this occurred in the developing nations as their population grew from 3.7 billion to 5.1 billion as against that of developed nation which grew from 1.1 billion to 1.2 billion over the same period (United Nation 2016) which has now risen to 6.16 billion (Population Reference Bureau (2015). Nigerian’s population is one of the fastest growing populations in the world and Nigeria is the most populous country in Africa, ranked the tenths as obtained from two major sources, viz the 1991 census and the Population Reference Bureau World Population Data Sheet. Obviously, the population of Nigeria is large which makes it a “giant” relative to the other Africa countries. The large population of Nigeria implies a large market for goods and services as well as large pool of human resources for development. However, the impact of population on development depends not only on the absolute size but also on its quality. The major function responsible for the rapid increase in the population of the country is the relatively high fertility level as portrayed by a total fertility rate of about 6.0 lives – birth per woman in the 1990’s.
So in this research work, our demonstration of population growth and inflation rate on economic growth was based on the study of the relationship between population growth, inflation rate and economic growth.
1.2 Statement of the Problem
Inflation rate and population growth on economic growth in Nigeria is a serious malady because high rate of population growth and inflation has brought recession and poor economic activities.
There is a general consensus that high Inflation rates and population growth cause problems for aggregate economic performance, although there is much less agreement about the relationship between Inflation, interest rate and economic growth and how it affects economic activities at the macroeconomic level. This has generated a significant debate both theoretically and empirically. The level of the country’s population growth and inflation rate is no longer the problem, but the fact that inflation has reached a crisis stage.
According to CBN (1997) the population growth rate of Nigeria is at an average of 2.83% from 1993 to 1997 as compared to developed country like United States whose population rate is 1.00% on the average. This rapid population growth has efficiently induce wide spread poverty. According to Chege (1992), Nigeria became worse than the early post-colonial period. In the 1980s the agricultural sector declined in productivity by 1.3% while population grew by 3.1% thus creating severe food shortage, a fall in capital income, a fall in savings and living standard. Because of this type of situation economic growth been severely retarded and dwarfed.
The Nigerian economy has remained underdeveloped for a long period despite being blessed richly with huge human and natural resources. This is as a result of various factors such as corruption, unemployment, inflation, population growth etc. During the period under review (1982-2015), there has been an increase in the rate of inflation and population growth which has led to various economic distortions, a situation whereby the government of a country interferes in the economy using policies such as fiscal and monetary policies, examples of some policies that led to distortions in the economy are minimum wage, lump sum tax, taxation, and government subsidies.
Also the over valuation of the Nigerian Currency (Naira) in 1980 after the fall of the oil boom contributed significantly to economic distortions in production and consumption thus leading to a high rate of dependence of the Nigerian economy on goods imported from other countries, that is more import less export. This led to a deficit in the balance of payment of the economy Bayo, (2005). Since the economy had a balance of payment deficit, in order to correct this various trade restrictions such as high import quotas, tariffs and export licenses were placed on the importation of various goods and services into the country. This led to a shortage in the availability of raw materials necessary for production thus leading to a decrease in the amount of goods and services available for purchase. This situation spurred inflation rate to rise from 20% in 1981 to 39.1% in 1984, Itua , (2000).
Structural Adjustment Program (SAP) started in Nigeria in the year 1980. This led to a temporary reduction in fiscal deficits, the government reduced her involvement in the economy and subsidies on various goods and services were removed. However, as the effects of SAP gathered momentum, the Growth rate fell drastically in 1990 from 8.3% to 1.2% in 1994, while inflation rose drastically from 7.5% in 1990 to 57.0% in 1994. In 1994, the central bank of Nigeria (CBN) devaluated the local currency (Naira), which led to a fall in amount of agricultural output as machines and raw materials (imported) became expensive. In 1995, the rate at which financial institutions lend money to individuals and firm stimulated inflation to rise to 72.8%.
Previous records showed that inflation in the Nigerian economy has gross effect on savings, investment, productivity and balance of payment thus leading to a fall in growth rate from 26.8% in 1991 to 5.4% in 2000 and 3.5% in 2002. In Nigeria, inflation discourages investment in financial assets and led to low growth of cash value, (Obafemi & Epetimehin, 2011).
Since the mid-1960, population growth and Inflation rate has become so contentious in Nigeria and the recent rate of Inflation has been a cause of great concern to many. The historical experience shows that Nominal population growth and Inflation rate are closely associated, bringing to light how economic activities are affected by this relationship.
Population growth and inflation rate affect the Nigerian GDP, in the sense that as population increases the demand for goods and services also increases simultaneously hence inflation increases.
Accordingly, this research aims to investigate, population growth and inflation rate on the economic growth of the Nigerian economy.
1.3 Objectives of the Study
- To find out the relationship between population growth and economic growth.
- To find out the relationship between inflation rate and economic growth.
- Research Questions
- What is the nature of the relationship between population growth and economic growth?
- Is there any relationship between inflation rate and economic growth?
1.5 Statement of the Hypotheses
The hypotheses to be used are stated thus:
H01:= There is no significant relationship between population growth and economic growth.
HA1:= There is significant relationship between population growth and economic growth.
H02:= There is no significant relationship between inflation rate and economic growth.
HA2:= There is significant relationship between inflation rate and economic growth.
1.6 Significant of the Study
- It provides information on population and inflation trends and their implication to the policy makers, educators, the media and the general public.
- To ascertain the truthfulness whether population growth and inflation rate have negative relationship with economic growth in Nigeria.
- This study will also serve as a reference research work for further studies
1.7 Scope of the Study
This research is macroeconomic in nature and it covers the trend of population growth, inflation rate and economic growth rate in Nigeria from 1982 to 2015, a period of 33 years. This period of study is remarkable for its major economics thrusts in Nigeria economic. The study also focuses on population growth and inflation rate on economic growth in Nigeria in a bid to analyze the options available to accelerate economic development, taking into cognizance of the fact that other factors outside the sphere of population and inflation are also important in the determination of the face of economic growth.