Spatial Econometric Analysis with Application of Phillips Curve on Nigerian Economy

Abstract

In recent times, spatial econometrics application is given reasonable attention as it deals with data of spatial type either in cross-sectional or panel form. This study examined application of Phillips Curve on the Nigerian Economy using 2018 cross-sectional data of consumer price index (CPI) as inflation rate and unemployment rate data sourced from the National Bureau of Statistics (NBS), Nigeria. Results from the Ordinary Least Squares (OLS) confirmed a negative relationship between inflation and unemployment in Nigeria though not significant while autocorrelation is present in the estimated model at 10% level of significance. The Moran I statistic for spatial autocorrelation test is only significant at 10% while the Monte-Carlo simulation of Moran I statistic at 10,000 simulations revealed the presence of spatial autocorrelation at 1% level of significant. Spatial Lag Model (SLM), Spatial Error Model (SEM) and Spatial Autoregressive with autoregressive error structure (SARAR) were applied in this study. The result from the spatial lag model shows a unit increase in unemployment leads to a decrease of 0.0011 in inflation rate. Lastly, a unit increase of unemployment in one state of Nigeria produces a total
impact of reduction of 0.0014 in inflation rate. The findings support Phillips Curve but the relationship is not significant in the case of the Nigerian Economy.