In addition high rate of inflation does not encourage

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fall in purchasing power of money. In addition, high rate of inflation does not encourage investments in the real sector of the economy but promote investment in low risk businesses with quick return, thus discouraging growth in output. The negative impact of interest rate on economic growth is not surprising, it should be noted that interest rate is the cost of borrowing; hence, a high rate of interest will be disincentive to borrowing. Thereby discourage investment and thus a declining growth rate. 4.2.2. Short-run Estimates In the short-run, as shown in the table (5), there is a negative and statistically significant relationship between ( GDPGR (-3) ) and its past value during the period of study. This indicates that last three years growth in output achieved has significant negative impact on the present year growth rate at 10% level of significant in line with the work of Ahmad and Suleiman (2011) and Henri and Henri (2011). The conclusion that could be drawn from this result could be that, the last year excess in income has not been properly reinvested into the economy; this could be as a result of alleged massive looting, capital flight, poor management and misappropriation of fund capable of having negative influence on the present year growth rate. Also negatively related to economic growth in the short-run is broad money supply at lag (4) This implies that money supply did not contribute to economic growth in the short-run as posited by Keynes in his advanced quantity theory of money. This could be due to the fact that financial institutions (commercial banks) that are expected to serve as intermediary between the surplus and deficit unit of the economy are not living up to the expectations. It is worthy of note that over the year, credit rationing has been one of the policies adopted by commercial banks to apportion loanable funds to different sectors of the economy. However, if such a policy is not in favour of the real sector, achieving growth in income on a sustainable basis through increasing monetary aggregates will be elusive. Under this scenario, expansionary monetary policy in form of increasing money supply will not translates into economic growth in the short-run until long-run as supplied by the results. This results is however in conformity with the findings of Ogunmuyiwa and Francis (2010); Suleiman (2010); and Taiwo(a) (2012). Inflation and Interest rates were negatively related to economic growth at 10% level of significant respectively implying that as inflation and interest rate increases, economic growth declines.
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Impact of Money Supply and Inflation on Economic Growth in Nigeria (1973-2013) DOI: 10.9790/5933-0803042637 www.iosrjournals.org 33 | Page Table (5): An Estimated VECM with Economic Growth (GDPGR) Dependent Variable C ECM(-) Eqn C ∆GDPGR( - 3) 0.381043 - 0.781293** -0.597853* -0.008964 1-403360 -0.858065 (4) (1.55983) (0.31560) (0.30846) (0.24665) (1.41696) (0.82511) ∆MSGDP( - 4) 0.934013 0.150931 -2.147477* -0.607619 2.026107 -1.725213 (5) (1.24726) (0.25236) (1.22053) (0.97595) (5.60667) (3.26483) ∆INFD( -3) -4.34771 0.196165 0.668866* -0.371704 1.204895 -0.488804 (6) (7.16531) (1.44975) (0.44098) (0.35261) (2.02570) (1.17959) ∆RINTR( -5) 3.537623 0.097604 -0.789226* -0.242792 1.571803 -1.477593 (7) (4.17244) (0.84421) (0.49742) (0.39774) (2.28498) (1.33957) The negative impact of inflation on growth in output could be explained by the law of demand, which stated that ‘the higher the price, the lower the quantity demanded’. There
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