Macroeconomic Stability and Inclusive Growth in Nigeria: A Cointegration Approach

The strategy of Inclusive growth is a newly introduced concept in Development economics that emerged in late 2000s out of the gross failure of traditional growth models to deal with the contemporaneity of high economic growth on one hand, and soaring poverty, inequality and unemployment on the other hand particularly in the developing world. Ever since, it has dominated policy-making framework in the world. This study sets out to examine the inclusiveness of growth in Nigeria and the role of macroeconomic stability to spur inclusive growth and development in Nigeria using the data for the period of 1960-2012. Due to lack of a standard measure of inclusive growth, an index of inclusive growth has been constructed using 23 agricultural, economic, education, environmental and health variables while applying Principal Component Analysis and Human Development Index formula. Econometric approaches of Johansen Cointegration testing and Vector Error Correction Model have been employed further to test the long run relationship between macroeconomic stability and inclusive growth in Nigeria. Our findings come up with three stylized facts: firstly, there is a long run relationship between all the regressors and inclusive growth; secondly macroeconomic stability has a significant impact on inclusive growth as GDPV and INV revealed an inverse relationship between them and inclusive growth. Lastly, TOP, FDI, C-GDP and GFC have negative impacts on inclusive growth. Hence the recommendation that there should be committed and sincere efforts towards diversifying the economy so as to contain the volatility by reducing the dominance of oil sector in the economy. Moreover, a macroeconomic policy targeting moderate inflation should be formulated just to make the economy stable and favorable for inclusive growth.