ABSTRACT
This study undertook an
in-depth investigation on the effect of deficit financing on the Nigerian
economy. The ex post facto research
design was used since the data obtained for the variables of the study covered
a past timeframe of 41 years - spanning from 1981 to 2021. Real GDP denoting
economic growth served as the dependent variable, while government budget deficit
financing disaggregated into external source of budget deficit financing,
banking system source of budget deficit financing, non-banking public budget deficit
financing, and ways and means, gross capital formation, real interest rate and
exchange rate served as the explanatory variables. The Ordinary Least Squares
(OLS) regression estimation that was used for the analysis established that
external source of budget deficit financing and the ways and means for budget
deficit financing had a negative and marginal effect on real gross domestic
product of Nigeria. Also, the OLS results showed that banking system source of
budget deficit financing and the non-banking public source of deficit financing
both had a positive and statistically significant effect on real gross domestic
product while gross capital formation had a positive but marginal effect on
real gross domestic product. Both real interest rate and exchange rate were
negative effect on real GDP but only the real interest rate was statistically
significant, implying that the trend in the dynamics of real interest rate
could undermine the potential economic enhancing effect of budget deficit
financing. The study used the Augmented Dickey-Fuller (ADF) unit root test 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 was applied. The ARDL bounds test showed 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 real gross domestic product of Nigeria. The ARDL estimation of error
correction mechanism also showed that RGDP adjusted rapidly to short-run
discrepancies in the long-run. Also, the error correction mechanism indicated
that external
source of budget deficit financing, non-banking public budget deficit financing,
ways and means source of deficit financing, gross capital formation and
exchange rate all had an immediate effect on real gross domestic product of
Nigeria. Based on the foregoing findings, the study concluded that deficit
financing still remains the best option for attaining the much desired rapid
and sustainable economic growth in Nigeria, provided the proceeds of the
borrowed funds are deployed to infrastructural and productive activities of the
country. It is therefore strongly recommended that policy makers in Nigeria
should ensure that state-owned enterprises borrow through government guarantees
to execute those critical projects that are most likely to yield future streams
of income that would facilitate industrialization; and invariably, accelerate
and engender sustainable economic growth.
INNOCENT, N (2024). Effect of Budget Deficit Financing on the Economy of Nigeria:- Umezurike, Innocent N. Repository.mouau.edu.ng: Retrieved Sep 07, 2024, from https://repository.mouau.edu.ng/work/view/effect-of-budget-deficit-financing-on-the-economy-of-nigeria-umezurike-innocent-n-7-2
NDIDI, INNOCENT. "Effect of Budget Deficit Financing on the Economy of Nigeria:- Umezurike, Innocent N" Repository.mouau.edu.ng. Repository.mouau.edu.ng, 17 Jul. 2024, https://repository.mouau.edu.ng/work/view/effect-of-budget-deficit-financing-on-the-economy-of-nigeria-umezurike-innocent-n-7-2. Accessed 07 Sep. 2024.
NDIDI, INNOCENT. "Effect of Budget Deficit Financing on the Economy of Nigeria:- Umezurike, Innocent N". Repository.mouau.edu.ng, Repository.mouau.edu.ng, 17 Jul. 2024. Web. 07 Sep. 2024. < https://repository.mouau.edu.ng/work/view/effect-of-budget-deficit-financing-on-the-economy-of-nigeria-umezurike-innocent-n-7-2 >.
NDIDI, INNOCENT. "Effect of Budget Deficit Financing on the Economy of Nigeria:- Umezurike, Innocent N" Repository.mouau.edu.ng (2024). Accessed 07 Sep. 2024. https://repository.mouau.edu.ng/work/view/effect-of-budget-deficit-financing-on-the-economy-of-nigeria-umezurike-innocent-n-7-2