IMPACT OF INFLATION ON INVESTMENT AND ECONOMIC GROWTH IN NIGERIA.
Need help with a related project topic or New topic? Send Us Your Topic
DOWNLOAD THE COMPLETE PROJECT MATERIAL
IMPACT OF INFLATION ON INVESTMENT AND ECONOMIC GROWTH IN NIGERIA.
Chapter one
INTRODUCTION
1.1 Background of the Study
Inflation is one of the most serious issues confronting the Nigerian economy today, and it remains a complex economic and social concern. Inflation has become a major topic of conversation among Nigerian homes and other countries around the world.
The government’s failure to propose a long-term solution fueled widespread belief that inflation is unavoidable, as well as pessimism that the government lacks the authority to reverse the trend of rising prices (inflation).
Inflation is not only a significant issue, but it also has a negative impact on the economy, political system, and society as a whole. Inflation is defined as a condition in which the value of money continues to deteriorate, resulting in increased prices for available goods and services.
Inflation is described as a constant rise in the pricing of goods and services. Inflation is simply the accumulation of too much money in pursuit of a limited supply of goods. Inflation in the country has become a threat to the Nigerian economy, particularly investment and growth.
Inflation is primarily caused by an increase in the supply of money and credit. According to the American College Dictionary, inflation is “undue expansion or increase of a country’s currency.” Inflation is also described as a prolonged increase in the overall level of prices for goods and services over time (Adebayo 1999). The term “inflation” is frequently used to describe an increase in the overall price level.
Inflation can alternatively be defined as a sustained and significant increase in the overall level of prices (Jhingan, 2006).Not every rise in the price level is considered inflation. As a result, for an increase in the general price level to be deemed inflation, it must be consistent, lasting, and sustained.
When the supply of money increases, people have more money to spend on products. If the quantity of products does not increase—or does not expand at the same rate as the supply of money—the price of goods will rise.
Inflation is often defined as a scenario in which the general price level of an economy rises rapidly and steadily. It is a social ill as well as a widespread economic phenomenon.
Aside from distorting prices, it erodes savings, discourages investment, promotes capital flight, stifles progress, and makes economic planning a nightmare, causing political turmoil.
Since the 1970s, policymakers have focused on how to lower inflation. Several authorities have ascribed it to the rise in public spending caused by the increase in oil revenues.
Excess aggregate demand can lead to inflation (demand pull). Cost-push inflation results from rising production costs, but structural inflation is caused by restrictions such as inefficient manufacturing, marketing, and distribution networks in the productive sectors of the economy.
In Nigeria, inflation has been a problem from the country’s inception. This was accelerated in the 1960s by the government’s “cheap money policy” to spur development following independence.
Inflation can affect an economy’s performance in both positive and bad ways. Inflation, on the other hand, has the potential to boost long-term growth by affecting capital accumulation. Inflation also has a negative impact on economic growth since it reduces productivity.
Some scholars argue that inflation can create uncertainty regarding the future profitability of investment projects. As a result, more conservative investment strategies were implemented than would have otherwise been the case, resulting in lower levels of investment and development.
In Nigeria, one of the key economic challenges is inflation; the country experienced minimal inflation in the years immediately following independence.To solve the inflation problem, several macroeconomic policies, including fiscal, monetary, and exchange rate policies, have been implemented on occasion. Unfortunately, these initiatives have met with little or no success, impeding the fulfilment of other macroeconomic goals.
This study aims to identify the influence of inflation on Nigerian investment and economic growth.
1.2 Statement of the Problem
Since obtaining independence in 1960, economic policy have mostly focused on anti-inflationary measures aimed at maintaining price stability. There is almost universal agreement that macroeconomic stability, defined as low inflation, is beneficial to development.
Indeed, Nigeria’s monetary policy framework, which has been in place since 1993, has a single-digit inflation target. Monetary and fiscal policies, as well as wage freezes, price controls, exchange rate adjustments, and other measures, have been used on occasion to stem the tide of sustained increases in the general price level. In retrospect, it appears that, despite these efforts, the achievement of the price stability target was restricted.
Inflation diminishes money’s role as a store of value. It discourages investment and growth. It also harms persons who are retired and rely on a fixed income.It is extremely difficult to calculate how much to create since businesses cannot foresee the demand for their products at the higher prices required to break even.
Empirical research on inflation, investment, and development supports the long-term inverse link between inflation and development. The negative relationship between inflation and growth has been attributed to a strong negative relationship between inflation, capital accumulation, and productivity growth. As a result, high inflation is thought to be detrimental to both investment and, thus, actual output.
Though most countries strive to keep inflation low, Nigeria has seen volatility despite the central bank’s persistent efforts to achieve a single-digit inflation rate through its monetary policies.
For example, throughout the last thirty years (1970-2000), the inflation rate has changed significantly. It became single-digit in seven years and doubled in twenty-three years, peaking at 72.8% in 1994 from 57.2% in 1993.
1.3 RESEARCH QUESTIONS.
This study will be directed by the following research questions:
1). What is the tendency of inflation in Nigeria?
2) What impact does inflation have on Nigeria’s economic growth?
3). How does inflation affect investment in Nigeria?
1.4 Objective of the Study
The purpose of this research is to investigate the effect of inflation on investment and economic growth. This study’s precise objectives are:
1. Analyse the country’s inflation and economic growth trends over time.
2) Look into the relationship between inflation, investment, and economic growth in Nigeria.
3) Investigate the impact of inflation on investment and economic growth in Nigeria.
1.5 Research Hypothesis
The hypotheses to be tested during the course of this investigation are listed below:
Ho: In Nigeria, investment is unaffected by inflation.
H1: Inflation affects investment in Nigeria.
Hypothesis II.
Ho: Nigeria’s economic growth is unaffected by inflation.
H1: Inflation affects Nigeria’s economic growth.
1.6 Justification for the study.
The study’s premise is that it seeks to solve specific problems, such as what drives inflation in Nigeria and how it relates to investment and economic growth. This answer will serve as the foundation for advice on how to decrease or eliminate inflation completely or to a minimum level.
1.7 Scope of the Study
This study will examine the impact of inflation on investment and economic growth from 1980 to 2013. As a result, this study will look not only at the impact of inflation on investment and development, but also on other macroeconomic variables.
1.8 Organisation of the Study
This study will be broken into five chapters.
I. Chapter One
Providing background information about the topic area to explain the need for the study.
II.Chapter 2.
Present related literature on inflation’s causes and impacts.
III. Chapter three.
The research technique
IV. Chapter Four
Data display and analysis.
V. Chapter five
Findings and recommendations based on those findings
Need help with a related project topic or New topic? Send Us Your Topic