THE IMPACT OF SOME SELECTED MACROECONOMIC VARIABLES ON THE NIGERIA ECONOMIC GROWTH UNDER THE VIOLATION OF MULTICOLLINEARITY

This study investigates the impact of some selected macroeconomic variables—exchange rate, interest rate, exports, imports, and inflation rate on Nigeria's economic growth in the presence of multicollinearity An annual time-series data spanning between 1981-2023 extracted from the CBN statistical bulletin are used for the analysis. This study employs descriptive Statistics, correlation analysis and ordinary least square method. However, the diagnostic test using variance inflation factor reveals the presence of multicollinearity, which render the OLS estimates inefficient and unreliable. To address this problem, a ridge regression (RR) estimation technique with ridge parameter constant is applied and it is found that the multicollinearity problem effectively addressed with a ridge constant δ = 0.014. Thus, findings from the fitted ridge regression model reveal that the interest rate exerted a negative influence on RGDP, implying that higher interest rates discourage investment and economic activity. Conversely, the exchange rate, exports, imports, and the inflation rate showed positive and significant effects on growth, suggesting that exchange rate stability, moderate inflation, and increased trade activities stimulate economic expansion. The ridge regression results, ranging from 1.247 to 9.800, confirmed that multicollinearity problem are effectively minimized. This study concludes that ridge regression technique offers a robust framework for modeling macroeconomic relationships in the presence of multicollinearity. Hence, policymakers need to adopt interest rate stabilization and trade-promoting strategies to sustain Nigeria's economic growth.