Impact of Macroeconomic Variables on Government Budget Deficit in Nigeria: 1981-2010

Abstract

Empirical results are mixed and controversial across countries, data and methodologies on government budget deficits and macroeconomic variables. However, the results are far from conclusive. This paper examines at the trend and empirical analysis of macroeconomic variables on government budget deficit in Nigeria for the period 1981-2010 using data from the Central Bank of Nigeria. Unit root test (ADF) was used to investigate the stationarity of the variables. Johansen Co-integration showed that RGDP, INF, EXCH, RIR, GBD, and GI are cointegrated 1(I) with at least 5* cointegrating equations at 5% level. The VEC result indicated that GI established long run relationship with RGDP at 5%. Finally, there is no statistical significance between government budget deficit and the economic growth in Nigeria. Therefore, recurrent deficits are therefore not necessarily used in furthering economic growth and development through national investments, but utilized in the repayment of accumulated national debt. The paper recommends amongst others that there is a need for the development of both economic and political institutions that would improve macroeconomic policy making and implementation. Therefore, the Fiscal Responsibility Act should be implemented fully to avoid the leakages in the financial management system of government; the Nigerian government should reduce the level of massive corruption in the public sector for the fiscal responsibility and sustainability to be attained in the country.

Keywords: Budget Deficit, Economic Growth, ECM, ADF, Nigeria