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Fiscal Deficit and Nigeria Economic Growth: An Investigation of Longrun Impact
Subject area: Arts, Social Sciences and Humanities · Area of research: Development Economics
Abstract
The study examined the impact of fiscal deficit on Nigeria economic growth between 1981 to 2020 through autoregressive distributed lag approach (ARDL). The study used gross domestic product (GDP) as the dependent variable. Government deficit financing (GDF), interest rate (INT) exchange rate (EXR) and inflation rate (INF) as the independent variables. The variables were tested for unit root using augmented dickey-fuller test (ADF). The unit root test showed a mix of integration of order 1(0) and 1(1) which satisfied the condition for the adoption of ARDL model. More so, the cointegration test revealed the presence of long run relationship. As such, the result of the long-run ARDL cointegration revealed (GDF) exert negative impact on (GDP). This shows that a 1% rise in (GDF) depresses (GDP) by 18.6%. more so, INT and EXR also exhibited inverse relationship with (GDP). Only INF was found to exert positive impact on (GDP). As such, based on the finding, the study concluded that fiscal deficit financing (GDF) exerts negative impact on (GDP). Hence, the study recommended that government borrowing should be capital and infrastructural investment focused, that is, such borrowing should be received inform of projects and not liquid cash.
Keywords
Fiscal deficit, economic growth, inflation rate, exchange rate, interest rate
References
[1] Abdurrauf, I. B. (2015). Fiscal Policy and Economic Development in Nigeria. Journal of Economics and Sustainable Development. www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol. 6, No.7, 2015.
[2] Adeneye O. A & Isa A. M. A. (2016), The Impact of Budget Deficit on the Nigerian Economic Growth, 1983 – 2014, Journal of Economics and Sustainable Development, Vol.7, No.14, 2016.
[3] Agu, S. U., Okwo, I. M., Ugwunta, O.D. & Idike, A. (2015). Fiscal Policy and Economic Growth in Nigeria: Emphasis on Various Components of Public Expenditure. DOI: 10.1177/2158244015610171. https://us.sagepub.com/en-us/nam/open-access-at-sage
[4] Central Bank of Nigeria. (2015), Statistical bulletin. Available from: http://www.cenbank.ng.
[5] Dwivedi DN (2004). Managerial Economics. 6th Edn., Vikas Publishing House PVT Ltd., New Delhi
[6] Greg E. E &Okoiarikpo B. O, (2015). Fiscal Deficits and Economic Growth in Nigeria: A Chow Test Approach, International Journal of Economics and Financial Issues ISSN: 2146-4138 available at http: www.econjournals.com
[7] Jeffrey, M. S. (2019). Fiscal Policy: Economic Effects. Congressional Research Service https://crsreports.congress.gov R45723jk.
[8] Olisaji, C. J., & Onuora, J. J. (2021). Impact of Fiscal Policy on the Growth of Nigerian Economy. Journal of Accounting and Financial Management, 7(2), 62-76. Retrieved from www.iiardpub.org
[9] Siegal, A. (1979). Inflation–induced Distortions in Government and Private Sector. IMF Working Papers, in Onwioduokit, E. A. (1999), Fiscal Deficits and Inflation Dynamics in Nigeria: An Empirical Investigation of Causal Relationships. CBN Economic and Financial Review, 37 (2): 1-16
How to cite this paper
@article{1703184,
author = {Eche Nwachukwu Austine, Pam Bitrus James, Akeem Adetokun, Salawu Abdulkamaru},
title = {Fiscal Deficit and Nigeria Economic Growth: An Investigation of Longrun Impact},
journal = {Iconic Research And Engineering Journals},
year = {2022},
volume = {5},
number = {8},
pages = {312-320},
issn = {2456-8880},
url = {https://www.irejournals.com/formatedpaper/1703184.pdf},
abstract = {The study examined the impact of fiscal deficit on Nigeria economic growth between 1981 to 2020 through autoregressive distributed lag approach (ARDL). The study used gross domestic product (GDP) as the dependent variable. Government deficit financing (GDF), interest rate (INT) exchange rate (EXR) and inflation rate (INF) as the independent variables. The variables were tested for unit root using augmented dickey-fuller test (ADF). The unit root test showed a mix of integration of order 1(0) and 1(1) which satisfied the condition for the adoption of ARDL model. More so, the cointegration test revealed the presence of long run relationship. As such, the result of the long-run ARDL cointegration revealed (GDF) exert negative impact on (GDP). This shows that a 1% rise in (GDF) depresses (GDP) by 18.6%. more so, INT and EXR also exhibited inverse relationship with (GDP). Only INF was found to exert positive impact on (GDP). As such, based on the finding, the study concluded that fiscal deficit financing (GDF) exerts negative impact on (GDP). Hence, the study recommended that government borrowing should be capital and infrastructural investment focused, that is, such borrowing should be received inform of projects and not liquid cash.},
keywords = {Fiscal deficit, economic growth, inflation rate, exchange rate, interest rate},
month = {February},
}