Abstract

This study empirically evaluated the impact of deficit financing on economic growth of Nigeria between 1981 and 2017. Auto Regressive Distributed Lag (ARDL) model and Bounds Test were adopted as the estimating techniques to verify the existence of long-run relationship between deficit financing and economic growth in Nigeria. Real gross domestic product was used as the dependent variable, while government budget deficit, government total debt, exchange rate and government expenditure were used as the explanatory or independent variables. Data used were extracted from the Central Bank of Nigeria statistical bulletin of 2018. The empirical results of Auto Regressive Distributed Lag (ARDL) model revealed that all the variables except exchange rate had positive and significant impact on real gross domestic product. Exchange rate had a negative and significant impact on real gross domestic product. This study recommended that Budget deficit should only be employed as the last resort, when it is absolutely necessary to budget for a deficit, the government should try as much as possible to mitigate the proportion of the overall deficits financed from external or foreign sources and finance budget deficit with domestic debt since it has a positive and significant impact on real gross domestic product. This will reduce the amount of foreign debt and its negative consequences.