The Relationship between Interest Rate and Economic Growth in Nigeria: An Error Correction Model (ECM) Approach

This study examined the relationship between interest rate and economic growth in Nigeria, using secondary time series panel data for the period 1985 – 2014. Data was collected from various issues of the Central Bank of Nigeria Statistical Bulletin and the National Bureau of Statistics. The study employed Augmented Dicker-Fuller (ADF) unit root tests as well as Johansen co-integration test followed by Error Correlation Model (ECM) approach. The ADF unit root test results indicated that the variables are all stationary at first difference. The variables were integrated of order one (1) which implies that the null hypothesis of non-stationary for all the variables of interest is rejected. The Johansen co-integration test result revealed the existence of two co-integrating relationship between the variables at 5% level of significance. The study proceeded to perform the ECM approach and found that interest rate is inversely related to economic growth, but the relationship is statistically insignificant. The recommended that monetary authorities should adopt appropriate polices that would promote and stimulate economic growth in Nigeria.