Deficit Financing and the Growth of Nigeria Economy
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Abstract
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.
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Deficit Financing and Economic Growth in Nigeria: 1987-2017
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.
Effectiveness of Deficit Financing in Stimulating Gross Domestic Output: Insights from the Nigerian Economy (1970 -2014) By
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.
AN EMPIRICAL ANALYSIS OF THE IMPACT OF BUDGET DEFICIT FINANCING ON ECONOMIC GROWTH IN NIGERIA (1981-2020)
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.
Effects of Budget Deficit Financing on the Economy of Nigeria
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.
DEFICIT FINANCING AND ECONOMIC DEVELOPMENT: THE NIGERIA'S EXPERIENCE Christian Gbarawae NWIKINA 1 (PhD); Joseph J. MEEKOR 2 (PhD Scholar); Sunny Chekiri Monday COOKEY 3 (PhD Scholar) and
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.
IMPACT OF EXTERNAL DEBT ON ECONOMIC GROWTH IN NIGERIA
The study investigated the impact of external debt on economic growth in Nigeria. The study employed the Auto regressive distributed lag method, Bounds test and the Granger causality test as analytical technique. The study found that external debt assumes a positive and insignificant relationship with gross domestic product. Also, the ratio of external debt to export indicates a negative and statistically significant relationship with gross domestic product. The study also discovered that exchange rate indicates a positive and significant relationship with gross domestic product. It also found that inflation rate and interest rate assume a negative insignificant relationship with gross domestic product. The study also discovered that there exists a long run relationship between external debt and economic growth in Nigeria and the error correction test result revealed that 67% of the displacement of economic growth from its equilibrium value as a result of the variations in external debt and other independent variables is corrected annually. The granger causality test result shows that external debt has no causal relationship with economic growth in Nigeria. The study recommends that government should diversify the nation's export base so as to increase export earnings and promote industrialization in order to reduce import dependency as a high exchange rate will make our goods more attractive in the foreign market and will increase foreign exchange earnings.
External debt and economic growth in Nigeria
Journal of African Union Studies, 2019
External debt may help or hurt the country depending on how it is used. Thus, this paper focused on the impact of external debt on economic growth in Nigeria from 1980 to 2017. Secondary data on real gross domestic product, external debt, external debt service and exchange rate were sourced from CBN statistical bulletin. The Augmented Dickey-Fuller unit root test and Autoregressive Distributed Lag techniques were used as the main analytical tools. The result of the unit root test revealed that the variables were stationary at order zero and one, which satisfied the requirement to employ the ARDL Bounds testing approach. The ARDL Bounds test revealed the existence of long run relationship among the variables. Furthermore, the result revealed that external debt and external debt service have negative and significant relationship with economic growth in Nigeria both in the long run and short run. However, exchange rate has positive and significant relationship with economic growth in Nigeria during the period of study both in the long run and short run. In conclusion, debt is an important development resource but its misuse can be disastrous as had been the Nigerian experience before it got out of the debt trap in 2005. Therefore, government should ensure that the terms of borrowing and the projects for which the borrowed funds are put should be those that benefit the economy and the people. Government should also ensure that debt proceeds are efficiently managed so that Nigeria can avoid a repeat of the ugly history of debt overhang.
External Debt and Economic Growth of Nigeria: An Empirical Investigation
South Asian Journal of Social Studies and Economics
The study investigates the impact of external debt on economic growth in Nigeria for the period 1999-2015. The data for this study was obtained mainly from secondary sources mainly from Central Bank of Nigeria (CBN) Statistical Bulletins and Debt Management Office. Time series data on Gross Domestic Product (GDP) as a proxy for Economic Growth, External Debt Stock (EXDS), External Debt Service Payment (EDSP), and Exchange Rate (EXGR) were used for the analysis. The techniques of Estimation employed in the study include Augmented Dickey Fuller (ADF) test, Johansen Co-integration, Vector Error Correction Mechanism and Granger Causality Test. Results show that external debt has an inverse effect on economic growth in Nigeria. Subsequently, the study recommends that government should empower Debt Management Office to set the mechanism in place, ensure that loans are utilised for purposes they are meant for and prosecute corrupt public officers who siphoned the money.
The Implication of Deficit Financing on Economic Recovery of Nigeria
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.
Empirical Analysis on Impact of External Debt on Economic Growth in Nigeria
This paper analyzes relationship between external debt and economic growth. Data collections are mainly secondary over the period of 1980 to 2010. The study hypothesized negative relationship between external debt; debt servicing and economic growth. Collected data were regressed using OLS technique and Augmented Dickey Fuller to test for the stationarity of the variables. Findings indicate a negative relationship between external debt and economic growth while that of debt servicing conforms with the apriori expectation of positive relationship. Hence, it is therefore recommended that Nigeria has to narrow down its international trade in order to save its balance of payment (BOP) to meet debt servicing needs of the country. The policy makers should also create credibility including political will in order to spur investor confidence for both local and foreign investments.
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Deficit Financing in the Process of Economic Development in Nigeria
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...
Deficit Financing and Economic Growth: Empirical Evidence from Nigeria
Journal of economics and public finance, 2023
The impact of deficit financing on economic growth has long been recognized in the extant literature given that this type of financing is germane to accelerated and sustainable economic growth. Yet, Nigeria did not seem to have utilized deficit financing proceeds to invest in those related infrastructural facilities that would generate income and augment domestic savings, thereby helping to make and sell quality products and services that are internationally competitive, and ultimately stimulate economic growth. Rather, the seemingly weak governance in the country engaged in massive misappropriation of public funds and outright corruption thereby exacerbating unemployment, insecurity, and widespread poverty both in the urban and rural areas of the country. The main aim of the study therefore was to investigate empirically the impact of deficit financing on economic growth in Nigeria for the period 1981 to 2019. Secondary data for the study were sourced from the Central Bank of Nigeria and the World Bank Global Development Index. The fully modified ordinary least squares methodology of the econometrics was employed to analyze the data of the study. The major findings of the study showed that the federal government domestic debt variable, the federal government budget deficit variable, the foreign exchange reserves variable, and the broad money supply variable exerted positive impacts on economic growth, while the external debt variable exerted a negative and insignificant impact on economic growth in Nigeria. The study therefore concluded that public borrowing in Nigeria can only induce rapid and sustainable economic growth only and if only borrowed funds are massively invested in related infrastructural facilities that would generate revenue which would augment domestic financial resources. Accordingly, the study recommended that the federal government of Nigeria should carefully study the state of its economy to enable it invest in those infrastructural facilities that are thought germane to the achievement of sustainable economic growth.
Economic Determinants of Deficit Financing in Nigeria
2020
Over the years fiscal operations in Nigeria have been characterized by massive deficits alongside massive infrastructural deficiency and weak economic fundamentals. This has not only weakened the conventional argument that governments engage expansionary fiscal policy to enhance economic growth and development but has extended the debate on whether deficit financing is the cause or result of weak economic fundamentals. In this study, the impact of selected economic indicators on fiscal deficits is examined. The study covers the period 1981-2016 and model estimation is based on the method of fully modified ordinary least squares (FMOLS). The result shows strong negative impact of external debt and money supply on fiscal deficits. It also shows that exchange rate depreciation and inflation exert strong positive influence on fiscal deficits in Nigeria. However, there is no evidence from the study that lending rate and output (GDP) growth rate significantly determine deficit financing in Nigeria. The study recommends that inflation and exchange rate targeting should be a major concern to the monetary authorities in the formulation and implementation of monetary policy. We suggest that future research in the area should incorporate institutional and political factors to ascertain whether or not they significantly determine the use of deficit financing in Nigeria.
Relationship Between Budget Deficit Financing and Macroeconomic Variables in Nigeria
The study investigates the relationship between budget deficit and macroeconomic variables like interest rates, inflation rates and exchange rates in Nigeria, with a view to establishing causality between the variables. Historical longitudinal data collected from CBN Statistical Bulletin, the National Bureau of Statistics (NBS) and journals covering the years 1981 to 2015 were analyzed using Augmented Dickey-Fuller (ADF) Unit Root Test, to test for the stationarity of the variables of the study, Johansen Cointegration Technique, to test for long-run integration of the data, and Granger Causality test in the Vector Auto-Regression (VAR) Model to establish the causal relationship among the variables of the study. All the variables became stationary at first difference, with the exception of inflation rates, which became stationary at levels, and there was no Cointegration in the variables of the study. All the variables were not found to Granger cause one another, except that there was a unidirectional causation from exchange rates to deficit financing to real GDP ratio, without any feedback effect. Government is advised to be mindful of the effect of exchange rates on budget deficit financing in Nigeria when it is deciding on deficit budgeting for economic development. This is based on the fact that Nigeria is an import oriented economy, and any exchange rate imbalances may defeat the objective of deficit budgeting and have an adverse effect on the economy. Keyword: Budget Deficit Financing, Interest Rates, Inflation Rates, Exchange Rates, Macroeconomic Variables.
IMPACT OF EXTERNAL DEBT AND GOVERNMENT EXPENDITURE ON THE ECONOMIC GROWTH OF NIGERIA (1981-2011
This study investigated the impact of external debt and government expenditure on the economic growth of Nigeria between 1981 and 2011. To achieve this, secondary data were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and the National Bureau of Statistics (NBS). In order to reduce the problem of stationarity usually associated with time series data, the data were subjected to the Augmented Dickey-Fuller test (ADF) and it found all variables to be integrated of order [I(I)] at first difference. Relevant econometric models such as the Johansen Co-integration test was employed to ascertain the long run relationship of the variables and also the Error Correction Model to estimate both the long and short term effects of the variables. The Jarque–Bera test which is a goodness of fit test was also conducted to determine whether the sample data had the skewness and kurtosis matching a normal distribution. The result showed a positive long run relationship between External Debt Stock (EXD), Government Expenditure (GEX) and economic growth proxy by GDP. It concluded that a unit increase in EXD and GEX drove GDP upwards by 65.6% and 84.25 % respectively. However, the relationship was found to be negative in the case of Debt Service Payment (DSP) where each unit increase caused a 98.76 % fall in GDP. In the short run the result revealed that Debt Service Payment (DSP) and Government Expenditure (GEX) both had a negative relationship with GDP. It held that each unit increase in both variables led to a 58.93 % and 18.92 % fall in GDP respectively. A positive short run relationship was however found in the case of External Debt Stock (EXD) which led to a 45.71 % rise in GDP. The study recommended that debt management strategy should be put in place continuously as part of the macroeconomic policies of government and the Debt Management Office, match project with timing of repayment, monitor the absorptive capacity of the economy for foreign capital and diversify the portfolio of debt in terms of sources and types to avoid concentration of debt service imperatives. The study also recommended that in the short run, government should ensure that it allocate her expenditure in a productive manner so as to ensure resultant effects that are capable of stimulating economic growth.
CORRECTED Relationship Between Budget Deficit Financing and Macroeconomic Variables in Nigeria
The study investigates the relationship between budget deficit and macroeconomic variables like interest rates, inflation rates and exchange rates in Nigeria, with a view to establishing causality between the variables. Historical longitudinal data collected from CBN Statistical Bulletin, the National Bureau of Statistics (NBS) and journals covering the years 1981 to 2015 were analyzed using Augmented Dickey-Fuller (ADF) Unit Root Test, to test for the stationarity of the variables of the study, Johansen Cointegration Technique, to test for longrun integration of the data, and Granger Causality test in the Vector Auto-Regression (VAR) Model to establish the causal relationship among the variables of the study. All the variables became stationary at first difference, with the exception of inflation rates, which became stationary at levels, and there was no Cointegration in the variables of the study. All the variables were not found to Granger cause one another, except that there was a unidirectional causation from exchange rates to deficit financing to real GDP ratio, without any feedback effect. Government is advised to be mindful of the effect of exchange rates on budget deficit financing in Nigeria when it is deciding on deficit budgeting for economic development. This is based on the fact that Nigeria is an import oriented economy, and any exchange rate imbalances may defeat the objective of deficit budgeting and have an adverse effect on the economy.
BUDGET DEFICITS, EXTERNAL DEBT AND ECONOMIC GROWTH IN NIGERIA
2010
The necessity for governments to borrow in order to finance a deficit budget has led to the development of external debt. This study examines how the use of budget deficits as an instrument of stabilization leads to the accumulation of external debt with the attending effects on growth in Nigeria between 1970 and 2003. By synthesizing a relationship between budget deficits and external debt the study shows the implications on economic growth of conducting a fiscal policy within the contexts of debt stabilization and debt sustainability. The results of the econometric analysis confirm the existence of the debt Laffer curve and the nonlinear effects of external debt on growth in Nigeria. The study concludes that if debt-financed budget deficits are operated in order to stabilize the debt ratio at the optimum sustainable level debt overhang problems would be avoided and the benefits of external borrowing would be maximized.
External Debt and Domestic Debt Impact on the Growth of the Nigerian Economy
The rationale for this paper is to establish the relationship between economic growth, external debt and domestic debt in Nigeria. Debt has become inevitable phenomenon in Nigeria, despite its oil wealth.This paper therefore is set to investigate the impact of external debt, and domestic debt on economic growth in Nigeria between 1970-2010 through the application of Ordinary least square method to establish a simple relationship between the variables under study, Augmented Dickey-Fuller technique in testing the unit root property of the series and Granger causality test of causation between GDP, external debt and domestic debt. The results of unit root suggest that all the variables in the model are stationary and the results of Causality suggest that there is a bi-directional causation between external debt and GDP while no causation existed between domestic debt and GDP as well no causation existed between external debt and domestic debt. The results of OLS also revealed that external debt possessed a negative impact on economic growth while domestic debt has impacted positively on economic growth (GDP). A good performance of an economy in terms of per capita growth may therefore be attributed to the level of domestic debt and not on the level of external debt in the country; therefore external debt is seen as inimical to the economic progress of a country. The paper found that domestic debts if properly manage can lead to high growth level. A major policy implication of this result is that concerted effort be made by policy makers to manage the debt effectively by channeling them to productive activities (real sector) so as to increase the level of output in Nigeria, hence achieving the desire level of growth. Another policy implication of the study is that most developing countries contract debt for selfish reasons rather than for the promotion of economic growth through investment in capital formation and other social overhead capital.Thus, the paper also recommends that government should rely more on domestic debt in stimulating growth rather than external debt. Government should formulate policies aimed at encouraging domestic savings vis-à-vis domestic investment. The need for borrowing is due to gap between domestic savings and investment, therefore, bridging the gap can be a likely solution to Nigeria's debt accumulation. For debt to promote growth in Nigeria and other highly indebted countries fiscal discipline and high sense of responsibility in handling public funds should be the Watchword of these countries' leaders. Debt can only be reduced to the barest minimum by increasing output level (GDP).
The Impact of External debt on Economic Growth in Nigeria
2014
The study investigated the impact of external debt on economic growth in Nigeria for the period 1980-2012. Time series data on external debt stock and external debt service was used to capture external debt burden. The study set out to test for both a long run and causal relationship between external debt and economic growth in Nigeria. An empirical investigation was conducted using time series data on Real Gross Domestic Product, External Debt Stock, External Debt Payments and Exchange Rate from 1980-2012. The techniques of Estimation employed in the study include Augmented Dickey Fuller (ADF) test, Johansen Co-integration, Vector Error Correction Mechanism and Granger Causality Test. The results show an insignificant long run relationship and a bi-directional relationship between external debt and economic growth in Nigeria.
Effect of Budget Deficit Financing on the Development of the Nigerian Economy: 1980-2008
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...
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