Author by Johnson Babatunde Solomon

Journal/Publisher: Review Of Innovation And Competitiveness

Volume/Edition: 4

Language: English

Pages: 93 - 114


Purpose. The role of macroeconomic variables in shaping the economic status has been debated in the literature. The management of these factors has been epileptic and sometimes contradictory with consequential implications for sustainable economy. This study therefore examined the relative significance of macroeconomic factors (inflation rate, interest rate, exchange rate and unemployment rate) on current national income. In addition, it sought to ascertain the relative importance of prior income (past GDP) on current national income (current GDP) based on data obtained between 1975 and 2015.
Methodology. The study deployed pre-estimation descriptive statistics and stationarity tests using the Augmented Dickey Fuller test and Phillip Perron tests. Johansen cointegration test was applied for establishing the long run relationship of the variables. The final phase is the post estimation tests to confirm the robustness of the estimated model. These are the Breusch-Godfrey test to check for any form of auto correlation among the variables, the heteroskedasticity test and the Impulse Response analysis of the dependent variable with respect to shocks in the explanatory variables.
Findings. The result findings revealed that inflation contributes negatively to economic growth. Interest rate, exchange rate and unemployment impact economic growth positively. The entire explanatory variables have no short-run effect. The result of the Breusch-Godfrey LM and Breusch-Pagan-Godfrey test indicated the absence of serial correlation and heteroscedasticity respectively. In effect, by itself, macroeconomic stability does not guarantee sustainable high rates of economic growth in the absence of key institutional and structural measures. The study recommended diversification of the economy and the use of inflation targeting which would be commensurate with the level of economic growth should be pursued by policy makers

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