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Fiscal Deficit and Economic Growth in Nigeria: Ascertaining a Feasible Threshold

Author

Listed:
  • Oluwafadekemi Aero

    (Department of Economics and Development Studies, Covenant University, Ota, Ogun State, Nigeria,)

  • Adeyemi A. Ogundipe

    (Department of Economics and Development Studies, Covenant University, Ota, Ogun State, Nigeria.)

Abstract

This study investigates the effects of fiscal deficits on Nigeria economic growth from 1981-2014. The study established an optimal fiscal deficit level using the Threshold Autoregressive (TAR) model. The empirical analysis supported the existence of a significant positive relationship between economic growth and the regressors capital, labour, inflation rate, and trade openness. On the other hand, the study found that a significant negative relationship exists between fiscal deficits, financial depth and economic growth in Nigeria. The study established a threshold level of 5% which is conducive for economic growth at a lag of one year, for the Nigerian economy. Aligning this finding to the present reality, it is hence concluded that the Nigerian economy has been characterized by continuous fiscal deficits, which has not positively contributed to economic growth. The study, therefore, recommends that the government should increase capital spending and ensure that an optimal fiscal deficit bracket level of 5% is maintained.

Suggested Citation

  • Oluwafadekemi Aero & Adeyemi A. Ogundipe, 2018. "Fiscal Deficit and Economic Growth in Nigeria: Ascertaining a Feasible Threshold," International Journal of Economics and Financial Issues, Econjournals, vol. 8(3), pages 296-306.
    • Handle: RePEc:eco:journ1:2018-03-35
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    References listed on IDEAS

    as
    1. H. Ahmed & SM. Miller, 2000. "Crowding‐out and crowding‐in effects of the components of government expenditure," Contemporary Economic Policy, Western Economic Association International, vol. 18(1), pages 124-133, January.
    2. Christopher S. Adam & David L. Bevan, 2006. "Aid and the Supply Side: Public Investment, Export Performance, and Dutch Disease in Low-Income Countries," The World Bank Economic Review, World Bank, vol. 20(2), pages 261-290.
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    Cited by:

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    2. Atoko Kasongo, 2023. "The Determinants of Fiscal Deficit in South Africa: A Bayesian Vector Autoregressive Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 13(4), pages 30-36, July.
    3. Xue-Bo Jin & Nian-Xiang Yang & Xiao-Yi Wang & Yu-Ting Bai & Ting-Li Su & Jian-Lei Kong, 2020. "Deep Hybrid Model Based on EMD with Classification by Frequency Characteristics for Long-Term Air Quality Prediction," Mathematics, MDPI, vol. 8(2), pages 1-17, February.

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    More about this item

    Keywords

    Fiscal Deficit; Growth; Threshold Autoregressive; Nigeria;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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