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Fiscal Deficit And Investment In Nigeria

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Abstract

Investment has been identified as a major factor in the economic growth and development, and by extension, contributes to high rate of employment, productivity, capital formation, and improved technology and poverty reduction. This study generally investigates the effect of fiscal deficit on investment in Nigeria, and specifically, determines the effect of fiscal deficit on private domestic investment, foreign direct investment and the causal relationship between private domestic investment and public investment in Nigeria for a period of 1980-2015. The study adopts neoclassical theory of investment of Dale Jorgenson’s approach, using macroeconomic data. It employs Dickey Fuller Generalized Least Square (DFGLS) and Autoregressive Distributed Lag Bounds testing approach of cointegration as estimation techniques. The results obtain indicate that fiscal deficit has a negative effect on private domestic investment in the short-run and a positive effect on foreign direct investment in the long run. Public investment and private domestic investment are autonomous in Nigeria. Following the findings, the study recommends that more emphasis of governments’ expenditure should be on infrastructures that help on capital formation which will inturn increase private domestic investment, instead of reccurent expenditures that have no effect on private domestic investment.

Suggested Citation

  • Olanipekun Kasali, Nurudeen, 2019. "Fiscal Deficit And Investment In Nigeria," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 6(6), pages 27-41, June.
    • Handle: RePEc:ris:ilojep:0019
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    References listed on IDEAS

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    1. Easterly, William & Schmidt-Hebbel, Klaus, 1993. "Fiscal Deficits and Macroeconomic Performance in Developing Countries," The World Bank Research Observer, World Bank, vol. 8(2), pages 211-237, July.
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    5. Jonathan Huntley, 2014. "The Long-Run Effects of Federal Budget Deficits on National Saving and Private Domestic Investment: Working Paper 2014-02," Working Papers 45140, Congressional Budget Office.
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    More about this item

    Keywords

    Fiscal Deficit; Investment; Nigeria.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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