MACROECONOMIC EFFECTS OF BUDGET DEFICIT IN NIGERIA

Obiageli Gloria Akamobi, Ijeoma Blessing Unachukwu

Abstract


This study probed the macroeconomic effects of budget deficit in Nigeria. Specifically, it seeks to probe the effect of budget deficit on private investment and public investment in Nigeria by adopting the ADF unit root test and ARDL model, Granger Causality test and the short-run diagnostics and stability using annual time series data covering 37 years from 1981 to 2019. The variables employed include – Growth rate of real gross domestic product, private investment (Gross Fixed Capital Formation) as a percentage of GDP, public investment measured as ratio government capital expenditure to GDP, budget deficit, money supply measured as ratio of GDP, inflation rate measured by annual year-on-year inflation rate, interest rate, labour force participation rate. The research findings admitted that, budget deficit have positive and significant impact on economic growth in Nigeria. Therefore, government budget deficit has no crowding out effect on investment. The study also reveals that budget deficit has negative and insignificant impact on private investment in Nigeria. In addition, further investigation shows budget deficit have positive and significant impact on public investment in Nigeria. Also, the study asserts that there is unidirectional causality running from budget deficit to economic growth, private investment and public investment. Based on the research findings of this study, Government must ensure and maintain strong fiscal discipline without compromising the wellbeing of the citizenry by allocating budget spending to sectors that can translate the deficit into high economic growth both in the short and long runs. Furthermore, budget deficit financing in Nigeria should be focused on the productive sectors of the economy. This is because deficit financing has merely resulted in economic instability indicating that sound policies are needed to achieve economic stability in Nigeria.

JEL: E02, H61, E22

Article visualizations:

Hit counter


Keywords


budget deficit, private investment, public investment, economic growth

Full Text:

PDF

References


Ahmed, M. & Alamdar, A. (2018). Effects of corruption and budget deficit on private investment: Evidences from Pakistan. International Journal of Development and Sustainability, 7(6),1898-1913.

Alesina, A., Favero, C. A. & Giavazzi, F. (2018). Climb out of debt. Finance and Development. March, pp. 6 - 11.

Anyanwu, J. C. & Oaikhenan, H. E. (1995). Modern macroeconomics Theory and Application in Nigeria. Journal Educational Publisher Onitsha.

Bedard, M. (2016). The Federal Government's deficits will not stimulate the Canadian Economy. MEI Viewpoint, Taxation Series. March, pp. 1 - 2.

Calderon, C. & Fuentes, J. R. (2013). Government debt and economic growth. Inter-American Development Bank (IDB) Working Paper Series, 424, 1 - 42.

Checherita, C. & Rother, P. (2010). The impact of high and growing government debt on economic growth: An empirical investigation for the Euro Area. The European Central Bank (ECB) Working Paper Series. No 1237, 1 - 40.

Drazen A. (1979). Towards a political-economic theory of domestic debt. In: Calvo G., King M. (eds) The debt burden and its consequences for monetary policy. International Economic Association Series. Palgrave Macmillan, London.

Epaphra, M. (2017). Analysis of budget deficits and macroeconomic fundamentals: A VAR-VECM approach. Journal of Economics and Management, 30(4):20 - 57.

Ezeabasili, V.N., Mojekwu, J.N. & Herbert, E.W. (2012). An empirical analysis of fiscal deficits and inflation in Nigeria. CS Canada International Business and Management, 4(1),105-120.

Ezeanyeji, Imoagwu & Ejefobihi (2019). Public Debt and inflation in Nigeria: An econometric analysis. International Journal of Applied Research, 5(3), 219-224

Friedman, B. M. (1978). Crowding-out or crowding-in? The economic consequences of financing government deficits. National Bureau of Economic Research (NBER) Working Paper Series, 284, 1 - 51.

Hall, R. E. (1978). Stochastic implications of the life cycle-permanent income hypothesis: Theory and evidence. Journal of Political Economy, 86,971-987

IMF (2015). Fiscal policy and long-term growth. International Monetary Fund (IMF) Policy Paper. April, pp. 1 - 255.

Irons, J. & Bivens, J. (2010). Government debt and economic growth. Economic Policy Institute (EPI) Briefing Paper, 271, 1 - 9.

Kindleberger, C. P. (1965). Economic development, 2nd Edition. New York: McGraw-Hill.

MTEF and FSP (2010). 2012 – 2015 Medium Term Expenditure Framework and Fiscal Strategy Paper, pp. 6-13.

Nimani, A. (2013). Consequences of fiscal deficit. Journal of Economics and International Finance, 5(3):58 - 64.

Noveski, M. (2018). Macroeconomic effects of the budget deficit in the Republic of Macedonia. Croatian Review of Economic, Business and Social Statistics, 4(2), 5 - 14.

Nwanna, I. O. & Umeh, G. N. (2019). Deficit financing and economic growth: The Nigerian experience. International Journal of Economics and Financial Management, 4(1),28 - 49.

Obadan, M. I. (2003). National development planning and budgeting in Nigeria, some pertinent issues. Broadway Press Ltd, Lagos.

Ogboru, I. (2006). Macroeconomics. Kaduna Liberty Publications limited.

Oladipo, S. O. & Ajisafe, R. A. (2015). Dynamic interactions among budget deficit, economic growth and poverty level towards capacity building strategy for sustainable development and poverty alleviation in Nigeria (1980-2012). Journal of Emerging Trends in Economics and Management Sciences, 6(7),169 - 174.

Ouattara, B. (2004). Modelling the long run determinants of private investment in Senegal. The School of Economics Discussion Paper Series 0413, Economics, the University of Manchester.

Paiko, I. I. (2012). Deficit financing and its implication on private consumption investment: The Nigerian experience. Arabian Journal of Business and Management Review, 1(10):45 - 62.

Pesaran, M. H., Shin, Y. & Smith, R. J. (2001). Bounds Testing Approaches to the analysis of level relationship. Journal of Applied Econometrics, 16(3): 289–326

Schumpeter, J. A. (1934). The theory of economic development. Cambridge, MA: Harvard University Press.

Shahbaz, M. & Rahman, M. M. (2012). The dynamic of financial development, imports, foreign direct investment and economic growth: Cointegration and causality analysis in Pakistan. Global Business Review, 13(2), 201-219.




DOI: http://dx.doi.org/10.46827/ejefr.v4i4.1022

Refbacks

  • There are currently no refbacks.


Copyright (c) 2021 Obiageli Gloria Akamobi, Ijeoma Blessing Unachukwu

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.

Copyright © 2015 - 2018. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing GroupAll rights reserved.

This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and  Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.