IMPACT OF FISCAL DEFICIT ON ECONOMIC GROWTH IN NIGERIA (1981 – 2013)

ABSTRACT

This study attempts to empirically review the impact of fiscal deficits on economic growth in Nigeria between 1981 – 2013. Budget deficit arises from fiscal operations of the government. Technically, a deficit would arise whenever expenditure surpasses revenues. In Nigeria, huge fiscal deficits had been recorded over the some years. To what extent have these impacted economic growth in Nigeria? In considering this question, this study posits that the inter play of variables such as interest rate, exchange rate, inflation rate along with fiscal deficits may give a better understanding of the impact of fiscal deficit on the economic growth in Nigeria. The study used Time series data collected from Central bank of Nigeria statistical bullentins Economic and Financial Review and Annual reports and statement of accounts from 1981 to 2013. To examine the objectives of this study, preliminary test of stationarity of variables using the Augmented Dickey Fuller (ADF) test, Johansen Cointegration test, Granger Causality test, and Error correction Model (ECM) technique were conducted respectively However, the empirical findings showed that fiscal deficits even though that it met the economic a prior in terms of its negative coefficients yet, did not significantly has impact on economic growth. The result also show a bilateral causality relationship between fiscal deficit and government capital expenditure, interest rate, and money supply while there is an independent relationship between fiscal deficit and government expenditure and inflation rate.From the analyses, it has been empirically confirmed that fiscal deficit and capital expenditure in Nigeria are growth inducing, therefore we recommend a sustainable and absorbable deficit budget which should be geared towards capital projects like infrastructural and human capital development to achieve sustainable growth and development, not as it is currently being directed towards unproductive and insignificant recurrent expenditure.