Journal: Sahel Analyst: African Journal Of Management
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Abstract
The findings in the literature on the impact of macroeconomic variables on the output of the service sector are mixed. This study investigates the effects of macroeconomic variables on the service sector in Nigeria from 1981 to 2016. The long run relationship among the variables was tested using the Johansen Co-integration test after the determination of the optimal lag length, while Vector Error Correction model was employed to detect the existence of short run relationship among the variables. The Impulse response function was also deployed to determine the shock effect of one variable on the other. This study revealed a short-run relationship between the output of the service sector and GDP. There was no short-run connection among service sector output on the one hand and each of inflation rate, interest rate, exchange rate, and unemployment rate on the other. There was a significant and positive nexus between the service sector and economic growth at 5 percent level. However, significant but negative relationship existed amongst interest rate, inflation rate and exchange rate. The unemployment rate was statistically insignificant. Based on these findings, we suggest that fiscal, monetary and trade policies should be synchronized in order to achieve macroeconomic stability in Nigeria. The phenomenon of policy inconsistencies should also be avoided.