THE IMPACT OF REAL INTEREST RATE ON ECONOMIC GROWTH IN NIGERIA (1995 - 2010)

Abstract

This paper examines the linear relationship between real interest rate and economic growth in Nigeria between 1995 and 2010. Data for analysis were sourced from the World Bank Data 2012. The resource proves to be more reliable and valid for data on
macroeconomic variables. The results of the Ordinary Least Square multiple: 'regression technique indicate a positive relationship between real interest rate and Gross Domestic Product in, Nigeria within the study period. Nevertheless, relationship between the variables was insignificant thereby
accepting the null hypothesis at 0.5 percent confidence level, and the rejection of the alternative. On the other hand, contrary to a prior expectation of apositive relationship between investment and
Gross Domestic Product growth rate, the result for the country is insignificantly negative. GDP increased with increase in money
supply though insignificantly, too. Among others, the study therefore recommends for policy action, that inflation rate which erodes the real interest rate be tracked down in the Nigeria
economy, and that the economy be diversified away from oil sector to encourage more performance of the other economic sectors in
the Gross Domestic Product.