Money Supply and Economic Growth in Nigeria (2000-2025)

Abstract

This study investigates the relationship between money supply and economic growth in Nigeria between 2000 and 2025. Using time-series data sourced from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS), the study employs econometric techniques, including regression analysis and unit root tests, to examine the relationship between money supply (M2) and key indicators of economic growth, notably real GDP. The findings reveal that changes in money supply have a statistically significant impact on Nigeria’s economic growth, with an expansionary money supply positively influencing GDP growth in the short and long run, albeit with some volatility due to inflationary pressures and structural economic challenges. However, credit to the private sector is inversely and statistically significant to determine the economic growth in Nigeria. Inflation rate and interest rate both have inverse effect. Several policy implications can be drawn from this study. The government, in formulating monetary policy, must be aware of the fact that the economic growth responds more favorably to an increase in the money supply. The government must also be conscious of the relationship between the interest rate and credit to private sectors and the purpose in enhancing economic growth. The study concludes that effective monetary policy and careful regulation of money supply are crucial for sustaining economic growth, emphasizing the need for policies that balance liquidity provision with price stability. Recommendations include adopting prudent monetary strategies and strengthening financial institutions to optimize the positive impact of money supply on growth.