IMPACT OF BUDGET DEFICIT ON NIGERIAN ECONOMY

ABSTRACT

This research adopts the ARDL model using time series data spanning between the periods of 1980-2020. The study examines the impact of budget deficit on the Nigerian economy. The ADF statistics was used to test for stationarity of the data involved in the analysis of the study while the long run form and bound test was also conducted to test for the long run relationship among the variables. It was statistically proven through the bound test that inflation rate, unemployment rate, money supply, life expectancy, growth rate and gross domestic product exhibit a long run relationship. The error correction regression of the ARDL which estimate the speed of adjustment to equilibrium in a co-integrating relationship revealed that 38% of the error in the short run is corrected every year; this is the speed of adjustment towards long rub equilibrium. The result from the estimate showed that budget deficit has a significant relationship with GDP which is a proxy for the Nigerian economy and the impact of inflation is negative and insignificant in tandem to GDP. As a result of this, policies that would improve the efficiency and productivity of the Nigerian economy such as monetary and commercial policy were recommended.