Monetary Policy and Sustainable Economic Growth in Nigeria: An Empirical Analysis (2010-2023)

Abstract

Nigeria’s pursuit of sustainable economic growth remains fundamentally challenged by economic volatility, inequitable growth distribution, and environmental degradation, necessitating examination of monetary policy effectiveness in addressing these impediments. This study examined the effect of monetary policy on sustainable economic growth in Nigeria. The study adopted an ex-post facto research design. The population comprised the Nigerian economy from 2010 to 2023. Purposive sampling technique was employed to select fourteen (14) annual reports covering the study period. Secondary data were obtained from the Central Bank of Nigeria Statistical Bulletin, National Bureau of Statistics, World Bank World Development Indicators, and United Nations Human Development Reports. Data validity was ensured through source credibility assessment whilst reliability was confirmed through diagnostic tests including unit root test, variance inflation factor, Breusch-Pagan test, and Lagrange multiplier test. Ordinary least squares regression analysis was employed for data analysis. Results revealed that monetary policy rate exerted a marginally significant negative effect on real gross domestic product (β = -0.189, p = 0.051, R² = 0.282). Inflation rate demonstrated a significant negative impact on real per capita income (β = -0.267, p = 0.019, R² = 0.382). Interest rate showed a significant positive relationship with human capital index (β = 0.0021, p = 0.038, R² = 0.312). Foreign exchange rate exhibited a highly significant positive association with sustainable development index (β = 0.0048, p = 0.002, R² = 0.571). The comprehensive model revealed that monetary policy instruments collectively exerted significant influence on economic growth (R² = 0.724, F = 5.896, p = 0.015). The study concluded that monetary policy significantly shapes Nigeria’s economic trajectory through multiple transmission channels, although individual instruments demonstrate varying effectiveness. The study recommended calibrated monetary policy rate adjustments, prioritization of price stability, integrated approaches to human capital development, exchange rate stability maintenance, and comprehensive policy coordination amongst monetary, fiscal, and sectoral authorities.