Estimation of Effects and the Threshold of Fiscal Deficit Financing for the Nigerian Economy:An Econometric Re-evaluation of Recent Trends
DOI:
https://doi.org/10.23918/ijsses.v4i3p68Keywords:
Fiscal Deficit Financing, Output Growth, Threshold Value, Nigeria JEL Classification: E28, O46, A32Abstract
The study uses an instrumental variable estimator to econometrically re-estimate effects of fiscal deficit financing on output growth rate plus the threshold value of such deficit financing that is consistent with growth rate of national output in Nigeria based on a system specification and theThreshold Autoregressive (TAR) specification. Estimations were done with quarterly data from 2010:Q1 to 2017: Q2. Results of likelihood ratio test validated existence of threshold effect and this implies that link between fiscal deficit financing and long-run output growth is non-linear in Nigeria while empirics of threshold autoregressive results evidently upholds that changes in fiscal deficit negatively impact output growth exclusively if such deficit financing exceeds 3% of GDP. By implication, fiscal deficit financing that exceeds 3% of GDP injures output growth in Nigeria. In effect, 3% is the threshold at which the sign of existing link between fiscal deficit financing and output growth switches. At threshold of 4% and above, the link becomes negative. Henceforward, the Nigerian monetary authority (CBN) can be so advised to target not more than 3% fiscal deficit financing for determination of output growth while simultaneously reduce lending rate to boost domestic investment that links local production required to boost exportation and so generate the requisite foreign exchange desirable to steer economic growth.
References
Ahmad H., & Millar, S. (2000). Crowding-out and crowding-in effects of the components of government expenditure. Contemporary Economic Policy, 18 (1), 124-133.
Akinmulegun, S. O. (2014). Deficit financing and economic performance in nigeria: a preliminary investigation. Adekunle Ajasin University, Akungba Akoko, Ondo State, Nigeria
Adam, C. S., & Bevan, D. L. (2004). Fiscal deficits and growth in developing countries. Journal of Public Economics, 89, 511-597. AfDB (2016), Various publications, Africa Development Bank. Budget Office of the Federation (2017). Federal Republic of Nigeria, Abuja.
Brauninger, M. (2002). The Budget deficit, public debt and endogenous growth. Journal of Economics, 63(41), 1-15.Bhatia H.L. (1987), “Public finance” VIKAS Publishing House. PVT Limited. Delhi, pp. 1.
Central Bank of Nigeria (2016). Annual Publications, Abuja.
Central Bank of Nigeria (2017). Annual Publications, Abuja.
De Castro, F. (2004). The macroeconomic effects of fiscal policy in Spain”, Banco de Espana, Working Paper Series, http//www.bde.es
Ejigayehu, D. A. (2013). The effect of external debt on economic growth: A panel data analysis on highly indebted African countries, Soderton University.
Ekperiware, M.C., & Oladeji, S.I. (2012). Budget deficit relief and economic performance in Nigeria. American Journal of Economics, 2(7). 12.
Faraji, K., & Makame, S. (2013). Impact of budget deficit on economic performance: A Case Study of Tanzania. Advances in Management and Applied Economics, 3(4), 59-82.
Friedman, M. (1956). The quantity theory of money – A restatement, in: Milton Friedman (ed.), Studies in the Quantity Theory of Money, University of Chicago Press, Chicago.
Gale, W. G., & Orszag, P. R. (2002). The economic effects of long term fiscal discipline, Urban-Brookings Tax Policy Center Discussion Paper, December.
Gemmel, N. (2001). Fiscal policy in a growth framework. World Institute for Development.
Giannaros D., & B. Kolluri B. (1989). The impact of budget deficits on real interest rates: an international empirical investigation. International Economic Journal, 3(2), 17 -25.
Gulcan Y., & Bilman, M. (2005). The effects of budget deficit reduction on exchange rate: evidence from Turkey. Discussion Paper Series 05/07.Economic Research, Discussion Paper No.2001/84, pp.1-23.
Hyman D. N. (1990). Public Finance A Contemporary Application of Theory to Policy (third edition). USA, Dryden Press.
Huynh, N. D. (2007). Budget deficit and economic growth in developing countries: The case of Vietnam. Kansai Institute for Social and Economic Research (KISER).
Iram, M. P. S., Shadid, A., Mahpara, S., & Fazli, R. (2011). Old wine in new bottles: testing the keynesian preposition of twin deficit in case of Pakistan. International Journal of Business and Social Science, 2(5), 209.
Johansen, S. (1988). A Statistical analysis of co-integration vectors. Journal of Economic Dynamics & Control , 12, 231–254.
Khan, M. S., & Senhadji, A. (2001). Threshold effect in the relationship between inflation and Growth. IMF Staff Papers, 48, 1-21.
Keynes, J.M (1998). The Collected Writings of John Maynard Keynes. London: Macmillan.
Korsu, R. D. (2009). Fiscal deficit and the eternal sector performance of Sierra Leone: A simulation, West African Journal of Monetary and Economic Integration, 9 (1), 51-73.
Li, E. (2005). Inflation and economic growth: threshold effect and transmission mechanism’, Department of Economics, University of Alberta, Canada. (Mimeograph) pp. 1-69.
Lozano, I. (2008). Budget deficit, money growth and inflation: evidence from the colombian Case. Borradores de Economia, 537, 1-26.
M’Amanja, D., & Morrissey, O. (2006). Fiscal policy and economic growth in Kenya. Centre for Research in Economic Development and International Trade, No. 5. Retrieved 27 March 2008 from https://nottingham.ac.uk/economics /research/credi
Monogbe, T.G., Dornubari I.G., & Emah, D.S. (2015). Deficit finance and the Nigeria economic performance: International Journal of Advanced Academic Research, Social Sciences and Education 1(3). National Bureau of Statistics (2017). NBS Annual Publications, Abuja.
Ogunmuyiwa, M.S. (2011). Does budget deficit promote economic performance? Current Research Journal of Economic Theory, 3(1), 29-35.
Onwioduokit, E.A. (2005). Fiscal deficit, inflation and output growth in Nigeria: a vector error correction model approach, Journal of Economics and Financial Studies, 2(1).
Omitogun, O., & Ayinla, T. (2007). Fiscal Policy and Nigerian Economic Growth, Journal of Research in National Development, 5 (2).
Osuka, B.O., & Achinihu, J.O. (2014) impact of budget deficits on macro-economic variables in the Nigeria economy (1981-2012). International Journal for Innovation Education and Research, 2(11).
Onuorah & Ogbonna (2014). Deficit financing and the performance of Nigeria economy: International Journal of Management Sciences and Business Research, ISSN (2226-8235) 3(2).
Perotti R. (2004). Estimating the effects of fiscal policy in OECD Countries. IGIER-University occoni and Centre for Economic Policy, pp 1-43
Sulaiman, L.A., & Azeez, B.A. (2012). Effect of budget deficit on economic performance of Nigeria. Journal of Economic and Sustainable Development, 3(8).
Shojai, S. (1999). Budget deficits and debt: a global perspective, praeger publishers, USA.
Vit, K. (2004). The possibilities of budget deficit financing. Ministry of Finance of the Czech Republic, vol. 44, pp. 1-17.
Downloads
Published
Issue
Section
License
Copyright (c) 2024 International Journal of Social Sciences & Educational Studies
International Journal of Social Sciences & Educational Studies applies the
Creative Commons Attribution-NonCommercial 2.0 Generic Licence (CC BY-NC 2.0)
