Macroeconomic Variables Volatility and Economic Growth in Nigeria (1970 - 2005)

Abstract

Low output growth in Nigeria have been attributed to a riumber offacto~ssu ch as

poor technology, demographic factors, social conditions, poor macroeccwomic policies,

insufficient infrastructural facilities and high dependence on primary products What

however, attracts lesser attention is the interface between output growth and

macroeconomic fluctuations. It is not only that output ~rowth is low but it fluctuates

beyond the expectations of different macroeconomic analysts There have been varying

rcsults among different existing empirical studies on the determinants of output growl11

in Nigeria. Most of these studies used cross-country re~ression to estimate the

determinants of output growth. Cross country regressions suffer from nieasurernent and

specification bias because of the heterogeneous nature of macroeconomic data among

less developed countries.

The current study adds to the existing literature by capturing tlie volatilily

clustering of econonlic growth and its determinants using country specific regression I t

also addresses the problem of the relationship betweell current shock OH econoniic

growth and conditional volatility of other periods ahead. This is useful fbr forecasting

volatility of economic growtli and otlier macroecononiic variables. It further addresses

the problem of determining the factors that are responsible for economic growtli and how

slructural shocks arc transmitted among macroeconon~ic variables in Nigeria The study

adopted two approaches: The Exponential Generalized Autoregressive Coiiditional

tleteroscedasticity (EGAKCII) and Vector Error Con-cction (VEC) modcls EGIZKC'I I

model was used to trace the deterininants of economic fluct~~ationasn d the volatilitv

clustering of eco~iomic growtli The VEC model traced the trans~nissiorl of structiiral

shocks among the variables.

The results show that lluctuations in economic growth is positively determined

by the level of inflation rate, real interest rate, unemploymerit rate, but negatively

influenced by investnient ratio, per capita inconie, real exchange rate and the degree of

trade openness It further shows that there is transmission of structural shocks between

econoniic growtli and its determinants. However, the tra~isniission mechanis~ii of these

shocks is complex and difficult to determine. The result of the conditional variance

shows that there is high degree of volatility clustering between eco~lomicg rowth and its

determinants. The News Impact Curve (NIC') indicates that the current sliocl< is

intlucnced by the puevious shocks and its eff'ect on otlier period ahead decaj.s exponentially