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Fiscal Decentralisation and Economic Development in Nigeria: Empirical Evidence from VECM Model

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  • Hammed Adetola Adefeso

    (Obafemi Awolowo University)

  • Olufemi Saibu

    (University of Lagos)

Abstract

This study examines long run and causal relationship between fiscal decentralization and economic development in Nigeria using annual data from 1970-2011. Both sub-national expenditures ratio and sub national revenue ratio were used to measure fiscal decentralisation in Nigeria. The result of the analysis showed that the federally allocated expenditures to sub-national has been greater than its corresponding allocated revenue in Nigeria and this has became pronounced from the year 1999 up till date under the administration of a dominant political party known as People Democratic Party (PDP) in Nigeria. Using VECM, the study found that fiscal decentralisation is cointegrated with economic development in Nigeria. That is, there is a long run relationship between fiscal decentralisation and economic development. The results from the VEC granger causality test showed a unidirectional causality run from economic development to fiscal decentralization i.e. economic development granger causes fiscal decentralization (only sub-national revenue decentralization ratio) in Nigeria. By implication, economic benefits derived from fiscal decentralization are the products of economic development simply because as economy is developing, these benefits emerge in Nigeria.

Suggested Citation

  • Hammed Adetola Adefeso & Olufemi Saibu, 2014. "Fiscal Decentralisation and Economic Development in Nigeria: Empirical Evidence from VECM Model," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(2), pages 163-170, April.
    • Handle: RePEc:dug:actaec:y:2014:i:2:p:163-170
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    References listed on IDEAS

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    1. Iimi, Atsushi, 2005. "Decentralization and economic growth revisited: an empirical note," Journal of Urban Economics, Elsevier, vol. 57(3), pages 449-461, May.
    2. Fritz Breuss & Markus Eller, 2004. "Decentralising the public sector: Fiscal Decentralisation and Economic Growth: Is there Really a Link?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(1), pages 3-9, October.
    3. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, vol. 67(2), pages 221-240, February.
    4. Hansjörg Blöchliger & Balázs Égert & Kaja Bonesmo Fredriksen, 2013. "Fiscal Federalism and its Impact on Economic Activity, Public Investment and the Performance of Educational Systems," OECD Economics Department Working Papers 1051, OECD Publishing.
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    Cited by:

    1. Hammed Adetola Adefeso, 2014. "Local Decentralisation and Economic Growth in Nigeria," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(3), pages 102-115, June.

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