On Econometric Approach to Modeling Economic Growth

Abstract

 In this study, an econometric model was developed based on economic growth variables (EGV ) and macroe
conomic variables(MEV ) of Nigeria using four(4) development indicators.The indicators are gross domestic product,
GDP (current US Dollar), inflation rate (proxy by consumer price index, CPI), interest rate, INR (%) and exchange rate,
EXR (Naira per USD). Data were collected from 1970 to 2016. The variance maximum rotation method in principal
component analysis was employed. The results of the analysis aided in the classification of the variables appropriately according to the variable classification scheme at the beginning of this study. GDP and CPI are classified to positively affect economic growth variables, which means they can be used to measure Nigeria’s economic growth, while interest rate and exchange rate are classified as having positive effect on macroeconomic variables for policy making.