The impact of policy trilemma trade-off on Nigeria economic growth

B.S Olugbon; Bosede Esther Akanbi; Anthony Dotun Oladipo

doi:10.65453/ijar.v10i2.1387

Authors

B.S Olugbon
Bosede Esther Akanbi
Anthony Dotun Oladipo

DOI:

https://doi.org/10.65453/ijar.v10i2.1387

Keywords:

Economic growth,exchange rate, policy trilemma, mundel-fleming

Abstract

This study investigates the implication of policy trilemma – trade-off among free mobility of capital, monetary policy autonomy, and exchange rate stability on Nigerian economic growth from 1981 to 2023. The data was sourced from the World Bank and Central Bank of Nigeria (CBN) statistical database, Stationarity of the series were ascertained with augmented dickey-fuller, Phillip-perron and ZA structural break unit roots test technique. The study utilizes the Autoregressive Distributed Lag (ARDL) model in analyzing both short- and long-run associations among the trilemma variables and real GDP growth. The study found that exchange rate stability combined with capital mobility (coefficient 0.6859; t-stat: 2.0811) is statistically significant and positively impact economic growth. This implies that if a country chooses to fix its exchange rate and allow free capital mobility, it must give up monetary independence which aligns with the prediction of policy trilemma. Which means the condition of Mundel Fleming is met in Nigeria Therefore, Policymakers need to understand how the degree of monetary autonomy is affected by the chosen exchange rate regime and the level of capital mobility accordingly to support long-run economic health.

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