Title: Evaluation of the Effect of Ratio of Money Supply to GDP on Economic Growth of Nigeria
Authors: OLOYEDE John Adebayo and OSO Olatunde Olayiwola
Volume: 9
Issue: 10
Pages: 181-189
Publication Date: 2025/10/28
Abstract:
Sustainable national development necessitated the identification of strategies that foster consistent economic growth. This study examined the impact of the money supply-to-GDP ratio on Nigeria's economic growth from 1986 to 2023. Specifically, it assessed the effects of the money supply-to-GDP ratio and the ratio of credit to the private sector relative to GDP on Nigeria's economic expansion. The investigation is situated within the Nigerian financial system, which predominantly followed the supply-leading or bank-based finance theory. Inferential statistical methods were employed to test the study's hypotheses. Data were sourced from the Central Bank of Nigeria's 2023 Bulletin, utilizing secondary data. The Augmented Dickey-Fuller (ADF) unit root test was applied to determine the integration order of the variables. Findings indicated that a one-unit increase in the money supply-to-GDP ratio corresponds to a decrease in economic growth by 0.082108 units. Similarly, a one-unit increase in the private sector credit-to-GDP ratio resulted in a 0.043240-unit reduction in economic growth. Conversely, when independent variables (money supply-to-GDP and private sector credit-to-GDP ratios) are held constant, the dependent variable (real GDP) increased by 8.334244 units. Notably, the coefficient for the money supply-to-GDP ratio is statistically significant and positively associated with economic growth, contributing 0.801039 units. This suggested that a unit increase in this ratio leads to a 0.801039-unit increase in economic growth. In conclusion, the relationship between financial sector development variables and economic growth in Nigeria is mixed, supporting the relevance of both demand-following and supply-leading theories in the country's financial development. Therefore, an efficient financial system that fosters interaction between bank- and market-based mechanisms is essential to achieve sustainable growth.