Financial Development, Fiscal Balance and Economic Growth Nexus in Nigeria

Abstract

This study critically examines the effect of financial development and fiscal deficits on economic growth in Nigeria since a decade after independence (1970) and 2012. The study employs a multiple regression model estimated using the classical least square method of estimation. The estimated model results reveal that financial development (FD) measured by ratio of total private claims to gross domestic product, Fiscal balance proxied by fiscal deficit (FD), and exchange rate (ER) exert positive influence on economic growth proxied by real gross domestic product (RGDP) in Nigeria. Also, financial liquidity/ widening measure as ratio of total money supply to gross domestic product (FL) and monetary policy rate (MP) are found to exert negative effects on economic growth in Nigeria during the period under review. The study later rejects the null hypothesis and concludes that financial development and fiscal balance have significant effect on economic growth in Nigeria. The study recommends some policy options of fostering economic growth on the basis of the reported findings.

Keywords: Financial Development, Fiscal Policy, Monetary Policy, Economic Growth.

Jel Classification:  H30, O40, E62, H60.