Threshold Effects Between Inflation and Economic MicGrowth From Nigeria

Abstract

This study investigates the threshold effects between inflation and economic growth in Nigeria, covering the period under review. Using annual macroeconomic data, the paper employs descriptive statistics, unit root tests, the Autoregressive Distributed Lag (ARDL) bounds testing approach, and threshold regression analysis. The ARDL results indicate evidence of a long-run relationship between inflation and growth, while the Error Correction Model (ECM) confirms short-run adjustments. Threshold regression analysis identifies a critical inflation level beyond which inflation exerts a significantly negative impact on economic growth. Specifically, the estimated threshold is around 13 percent, consistent with prior findings in the literature. Below this level, inflation has a mild positive or insignificant effect, whereas above the threshold, its adverse effects dominate. The results highlight the importance of maintaining inflation within manageable bounds to sustain growth. Policy implications suggest that Nigerian monetary authorities should strengthen inflation targeting frameworks and coordinate fiscal policies to achieve macroeconomic stability. The findings contribute to the ongoing debate on the inflation-growth nexus and provide empirical evidence relevant for policy formulation in developing economies.