Impact of Fiscal Policy on the Economic Growth in Nigeria: An Empirical Analysis

Abstract

The study investigated the impact of fiscal policy on the economic growth in Nigeria, Annual time series data were obtained from the Central Bank of Nigeria Statistical Bulletin for the period 1981 to 2018 on the variables used for the study. Unit root test was conducted using Augmented Dickey-Fuller test technique and the result showed that the variables were stationary though at different levels. Co-integration test was also conducted using Johanssen co-integration test method and the result showed that the variables in the model were co-integrated implying that the variables have a long run relationship. The vector error correction estimate of short run relationship showed that domestic debt, external debt and non-oil revenue have a positive and significant impact on economic growth while recurrent expenditure and capital expenditure have a negative and significant impact on economic growth. The vector error correction estimate of long run relationship revealed that domestic debt and external debt have a negative and insignificant impact on while recurrent expenditure has a negative and significant impact on economic growth. The result showed that capital expenditure has a negative and insignificant impact on economic growth while non-oil revenue has a positive and significant impact on economic growth. The R-squared value showed that about 80.7 percent of the total variations in the dependent variable were explained by changes in the explanatory variables. The error correction result revealed that the speed of adjustment to long run equilibrium is 23.7 percent when any past deviation must be corrected in the present period. Based on the findings, it was recommended that government should ensure greater percentage of its spending goes to the capital expenditure while smaller percentage goes to the recurrent expenditure as this will help to prove adequate infrastructure that will help in stimulating economic growth. Government should also ensure that there is full and honest implementation of the annual budget. Government should equally ensure that ensure that public debts are strictly used for the purpose for which they are meant for.

Keywords: Government expenditure, Government revenue, Government borrowing, Economic growth

DOI: 10.7176/EJBM/12-12-04

Publication date: April 30^th 2020