Open AccessMACROECONOMIC EFFECTS OF BUDGET DEFICIT IN NIGERIA
Author(s) -
Obiageli Gloria Akamobi,
Ijeoma Blessing Unachukwu
Publication year - 2021
Publication title -
european journal of economic and financial research
Language(s) - English
Resource type - Journals
ISSN - 2501-9430
DOI - 10.46827/ejefr.v4i4.1022
Subject(s) - deficit spending , economics , investment (military) , government budget , crowding out , inflation (cosmology) , gross domestic product , gross private domestic investment , granger causality , capital expenditure , gross fixed capital formation , monetary economics , public capital , federal budget , money supply , macroeconomics , fiscal policy , interest rate , public finance , public investment , return on investment , open ended investment company , finance , fiscal year , production (economics) , econometrics , debt , theoretical physics , political science , physics , politics , law
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
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