Deficit Financing and Economic Recovery

2017

These empirical research works is anchored on the three fundamental and theoretical arguments that emanated between the Keynesian school, the neoclassical school of thought and Ricardo hypothesis and their view on deficit financing with respect to its contribution to economic development. Despite the huge quantum of debt Nigerian government accommodate yearly, the expected level of development is not been attained as larger percentage of her citizens still lives in abject poverty, low standard of living and high level of unemployment and so on. At this junction, one begins to wonder why the theoretical suggestion dose not seems to be working in the Nigerian context. It is based on these hullabaloos that this study seeks to investigate the effect of deficit financing on development of the Nigerian economy between the periods 1981 to 2015 using error correction model and granger causality test. Study report that Federal government external debt exhibits a significant P-value of 0.0173...

There has been increasing concern among scholars on the effect of budget deficit on economic growth in Nigeria. Some scholars argue that it portends positive effect, some other group insist that it has negative effect while others classify the effect as neutral. In the face of these arguments and within the context of persistent deficit financing in Nigeria, we set out to examine the effectiveness of deficit financing as a veritable instrument to enhance economic development in Nigeria. While human development index was used to measure economic development, budget deficit and government expenditure were used to proxy deficit financing. Data sourced from Central Bank of Nigeria Statistical Bulletin for the period 1986 to 2019.Employing the Autoregressive Distributive Lag and Granger Causality Test techniques, the results revealed that budget deficit and government expenditure exert positive but marginal influence on economic development in Nigeria. Also, the study shows a unidirectional causality, indicating that deficit financing through government expenditure promotes economic development in Nigeria. Although, the study supports the Keynesian theory with a positive influence, deficit financing value in Nigeria is not substantive enough to drive the needed century-development desired in the economy. Therefore, the study recommended establishment of an institutional framework to monitor the application of budgeted funds. Also, oversight function of state and national assemblies be further be strengthened. Finally, all borrowed fund should be channeled into productive projects capable of enhancing the people's economic well-being as well as servicing the debt. These measures will enhance value for money spent.

Conference Paper, 2021

The study analysed the effect of deficit financing on economic recovery of Nigeria using annual time series data covering 1986-2020. Autoregressive Distributed Lag Model (ARDL) was the technique of analysis employed. The results of the study revealed that deficit financing (using domestic borrowing and external borrowing) has no significant effect on economic recovery of Nigeria as measured with gross domestic product growth rate (GDPGR). Thus, the paper recommended, among others, that the federal government of Nigeria should set up an independent institution, made up of professionals, charged with the responsibility of executing projects and monitoring of the overall budget implementations. This will ensure prudent use of the borrowed funds and enhance the recovery of the economy. Also, internally generated revenue should be prudently utilised to execute productive projects and take care of governance/administrative costs. If this is done, the need for further borrowings to fund budget deficits will reduce, consequently causing a reduction in debt service and enhancement of economic recovery.

The general objective of the study is to analyze the effect of Deficit Financing on the economy. In order to understand whether or not Deficit Financing impacts on economic growth. The study utilized data from publications of the Central Bank of Nigeria Statistical Bulletin between 1981-2012. The paper applied descriptive statistics, OLS, Diagnostic test, ADF unit root, Johansen Co-integration and pairwise Granger causality test and the findings shows that the variables were stationary at first difference data 1(1). The variables were jointly co-integrated at 5% level. Showing that Deficit Financing were seen to be statistically significant and positively related to economic growth in Nigeria. This suggests that both domestic debt and external debt liability contributes effectively to the settlement of Nigeria debt. In Nigeria with respect to the regression result, it is apparent that domestic debt and external debt remains the crucial source of financing Nigeria debt. The study therefore concluded that so far as a long-run equilibrium relationship exists between the dependent and independent variables, and has assumed that the deficit financing assert sufficient influence on the growth in the debt management and services in Nigeria. From these affirmation findings, this research suggests appropriate combination of internal and external debt ratio with a close monitoring situation. We recommended that the Policy makers should control the level of deficits to ensure that it is within this level. Also, a decrease is required in the level of the deficits could strengthen the exchange rate, and control inflationary pressure in Nigeria.

A lot of studies have been conducted in the Nigerian economy on deficit financing but there exist contrasting views as to whether deficit financing stimulate economic growth or not. This study employed the ordinary least square technique (OLS) to examine the effectiveness of deficit financing in stimulating economic growth in Nigeria and also tested for causality using the granger causality pair wise test. The variables employed were real GDP as the dependent variable while deficit financing, the current account balance, foreign private investments, and savings were the explanatory variables. The granger causality test result indicates a unidirectional causality flow from GDP to deficit financing, to current account balance, foreign private investment and savings. The empirical findings also revealed that deficit financing has a positive but not significant impact on real GDP, which is in line with the Ricardian Equivalence Theory. Therefore, deficit financing had no impact on economic growth in Nigeria for the period under review. The study recommends that deficit financing, should only be adopted for financing long-term capital project. Foreign private investment should be promoted and policies aimed at savings mobilization should be enacted by the government.

AKSU Journal of Administration and Corporate Governance, 2024

The study investigated the effects of deficit financing on the Nigerian economy using data that covered 41 years (1981 to 2021). Real gross domestic product (RGDP) was the dependent variable, while government budget deficit financing disaggregated into different sources of budget deficit financing represented the explanatory variables. The ordinary least squares (OLS) regression method was used for the tests and analyses. Results established that both non-bank public sources of deficit financing and banking system sources of deficit financing had positive and significant effects on growth. However, non-bank public deficit financing positively led the Nigerian economy and was followed by banking system deficit financing. Both ways and means and external deficit financing sources were negative and insignificant in influencing the Nigerian economy. Ways and means were third while external deficit financing was fourth in descending order of influence on RGDP growth. The study further applied the Augmented Dickey-Fuller (ADF) approach to unit root tests and observed that the variables were integrated at both levels and first difference, leading to the application of the Autoregressive Distributed lag (ARDL) approach to data estimation. The ARDL bounds tests showed that the model specified for the study followed a long-run path and that a long-run relationship existed between the dependent variable and the explanatory variables. The estimation of the long-run and error correction estimation indicated that the independent variables had a time-varying effect on the real gross domestic product of Nigeria. That ARDL estimation of the error correction mechanism also showed that RGDP adjusted rapidly to short-run discrepancies in the long run. Finally, the error correction mechanism showed that external sources of budget deficit financing, non-banking system public deficit financing, ways and means source of deficit financing, gross capital formation, real interest rate and exchange rate, all had robust effects on growth, though with varying directions of influence. Based on the foregoing, the study has recommended deficit financing, more especially non-bank public deficit financing and banking system deficit financing as better options for attaining the much desired rapid and sustainable economic growth of Nigeria as they have been proven to be non-inflationary in practice compared to ways and means and external source of deficit financing over the years.

European Journal of Business and Management, 2013

The main objective of this study was to investigate the influence of government budget deficit financing on economic development in Nigeria. Six research hypotheses were formulated to evaluate the relationship between government budget deficit financing, unemployment, inflation, BOP, government financing, and government revenue as the independent variables and GDP as the dependent variable. Secondary data was collected from CBN statistical bulletin. Ordinary least square regression technique was used to estimate equations formulated for the study. Results of the findings revealed that: there exists a significant relationship between budget deficit financing and economic growth in Nigeria. An inverse relationship existed between GDP and unemployment in Nigeria, a direct relationship was observed between GDP and inflation in Nigeria. The findings also show that there existed a significant relationship between GDP and government expenditure and an inverse relationship was observed betw...

Asian Journal of Economics, Business and Accounting, 2019

The debt profile of the Government of Nigeria has been on the increase from 1986; climaxing during the worst recession Nigeria economy has entered into after the structural adjustment programme (SAP). With the reduction in government revenue occasioned by the fluctuations of price of crude oil in the international market and absolute recklessness on the part of successive government, the government has no option than to borrow to fund its day to day activities. This study examined the effect of deficit financing on economic growth of Nigeria from 1987 to 2017. Vector Autoregressive Estimates was used in estimating the model. The analysis performed revealed that deficit financing has positive but insignificant effect on Nigerian economic growth. We recommended that government should strive to diversify its revenue base and also demonstrate a high level of transparency in both its monetary and fiscal operations among others.

2012

This study posits to investigate the relationship between fiscal deficits, economic growth and money supply in Nigeria. In Nigeria, huge fiscal deficits had been recorded over some years. What has been the nature of the relationship between fi scal defi cits, economic growth and money supply in Nigeria? To answer this question, Granger causality test was conducted to see whether fi scal defi cits granger cause economic growth and money supply or economic growth and money supply granger cause fiscal deficits. The results show that fiscal deficits granger causes economic growth and broad money supply in Nigeria. This implies that fiscal deficits positively affect economic growth and money supply in Nigeria. It is therefore recommended that fiscal deficits should be undertaken with efficient and well-executed plan for economic development. Furthermore, fi scal and monetary policies should be coordinated in such a way that both the public or private sector of the economy should not be h...

Deficit financing and economic growth , 2022

The study examined the effect of deficit finance on Nigeria economic growth. The main objective of the study is to empirically examine the effect of deficit financing on Nigeria’s economic growth. The study used secondary data from CBN statistical bulletin on various issues as relevant for the period under study (1981-2020). Augmented Dickey Fuller (ADF) unit root test, Johanson Co-integration test and normality test were employed for the analysis. The research findings revealed that deficit financing through External debt borrowing has a significant negative effect on Nigeria’s economic growth. Also Domestic debt has a positive significant effect on Nigeria’s economic growth, while Debt service has no significant effect on Nigeria’s economic growth. The study therefore, recommends that Government should set up monitoring teams that will make sure that the budget is well and carefully implemented and as well as loan borrowed in other to reduce corruption, linkages and wastages, the team will do this by holding everyone accountable for every kobo of government money spent.