Fiscal Deposit and Economic Development of Nigeria
Chapter One
Objective of the study
The following research objectives are to be ascertained;
- To determine the effect of government expenditure on econonomic development in Nigeria.
- To determine the effect of total federal government collection of revenue on economic development
- To examine the effect of public external debt on economic development
- To examine the effect of exchange rate on economic development in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
CONCEPTUAL FRAMEWORK
CONCEPT OF FISCAL POLICY
According to Musa (2021), fiscal policy simply refers to the actions taken by government with a view to controlling government expenditure and income in order to achieve some predetermined macro-economic objectives. Usually, these objectives include, but are not limited to reduction in unemployment level, price stability, rapid economic development and a healthy balance of payments position (Abdurrauf, 2015). In developing countries, fiscal policy is regarded as a means for moving backward economies to the path of sustained economic growth and development. The fiscal system is generally considered as one with a package of instruments for translating development policy objectives into practice. The authors contend that the implementation of fiscal policy is essentially done through government’s budget. Fiscal policy is used mostly to achieve macroeconomic policy. According to the authors, it is also employed either to reconcile the changes which government modifies in taxation, expenditure, and programs or to regulate the full employment price and total demand to be used through instruments such as government expenditures, taxation, and debt management. The objective of fiscal policy is to promote economic conditions that are conducive to business growth while ensuring that any such government actions are consistent with economic stability (Anyanwu,1998).
FISCAL DEFICIT
Adegboyo et al. (2020) report that there are different definitions of fiscal deficit by different scholars. For International Monetary Fund fiscal deficit can be defined mathematically as {(revenue + grants) –(expenditure ongoods and services + transfers) –(lending –repayments)}. It is the excess of government expenditure over income in a given period usually a year. Fiscal deficit is one of such package of instruments of fiscal policy. It involves the use of government spending, taxation, and borrowing to influence the pattern of economic activities and also the level and growth of aggregate demand, output, and employment. It demands that government manages the economy through the manipulation of its income and spending to achieve certain desired macroeconomic objectives (goals) one of which is economic growth. Olawunmi and Tajudeen (2007) confirm that fiscal policy has conventionally been associated with the use of taxation and public expenditure to influence the level of economic activities. Fiscal deficit can be financed through domestic borrowing and external borrowing. It is expected that when fiscal deficit is properly harnessed, there will be infrastructural and human capital development, reduction in unemployment and recovery from depression/recession. All those would in turn be expected to increase average standard of living of the populace and consequently promote economic growth. However, Anyanwu (1997) posits that when fiscal deficit is not more than 3 percent of the GDP which is the international bench mark then it can adversely affect interest rate, inflation rate as well as balance of payment, and deter economic growth It can reduce national savings which would have been use for private investment. In other words, it crowds out private domestic investment. This will lead to a reduction in capital stock and national output. As such government should only borrow when there is recession or high unemployment, or when there is a rise in a private sector savings. It can also be detrimental to development when an excessively large percentage of deficit budget is used to finance current consumption. Fischer and Easterly (1990) cited in Nwanna and Umeh (2019) identify four ways of financing the deficit, namely (i) domestic borrowing. (ii) external borrowing (iii) printing money (ways and means) and (iv) the use of foreign reserves Domestic borrowing has four components. These include (i) Borrowing from the Banking System (ii) Borrowing from the non-banking public, (iii) Borrowing from the Central Bank through the issuance of new currency and (iv) Drawing from the reserves of the Central bank
Concept of Economic growth
In general, economic growth is defined as percentage increase in gross domestic product (GDP) on year-toyear basis. Economic growth means a sustained increase in per capita national output or net national product over a long period of time According to Black (2002), an increase in an economic variable, normally persists over successive periods. Growth in the quantity of real output and income is an example of change in the economy’s performance through time. An economy expands as a result of an upward limp in the quantity of products and services. Expansion in an economy can take place also because the quantity of resources is expanded while using those resources more effectively (Nzotta, 2014).
CHAPTER THREE
Model specification
The model for the study assumes an underlying behavior of the real gross domestic product and fiscal deficit in Nigeria.
The model is specified as follows;
RGDP f GOVE,TFCR, PEXD, EXCR , INTR
The explicit form of Equation 3 is represented as follows:
RGDPt 0 1GOVE 2TFCR 3 PEXD 4 EXCR 5 INTR t
Where GOVE is government expenditure at period t; TFCR is total federation collection revenue at period t; PEXD is public external debt at period t; EXR is the exchange rate (naira to US dollar) at period t; INTR is interest rates at period t; are parameters, while e is an error term. Based on Perron (1989), the equation for estimating unit root test for variable stationarity, the equation takes into account the existence of unit root equation and cointegration (Engle et al., 1989).
CHAPTER FOUR
Results and Discussions
The study examines the pattern of the fiscal deposit and economic development in Nigeria. Table 1 below shows the results of the diagnostic check of the variables used in this study.
CHAPTER FIVE
SUMMARY CONCLUSION AND RECOMMENDATION
SUMMARY
This paper focuses on the fiscal deficit on economic development measures of fiscal deficit variables (Public external debt-PEXD, government expenditure-GOVE, total federal collection revenue-TFCR, exchange rate-EXCR, and interest rate-INTR) on economic development in Nigeria from 1990 to 2020 to determine the effect and influencing factors. The variables were stationary strictly at order 1 and co-integrated at none. The findings confirm that there is no long-run relationship between the variables of fiscal deficit in Nigeria. However, there is no significant evidence of a long-run relationship between economic development determinants
CONCLUSION
The paper concludes that the driving variables of economic development in Nigeria were Public external debt-PEXD, total federal collection revenue-TFCR, and interest rate-INTR. The public deficit financing was determined based on the study by the variables of Government expenditure (GOVE), real GDP, exchange rate-EXCR. The best model of ECM to determine the impact of fiscal deficit in Nigeria is the interaction with economic development performance measures in Nigeria. The findings confirm that one standard deviation of shocks of fiscal deficit has a significant influence on economic development, hence confirming the long-run relationship. Economic development model estimates indicate model optimality selection based on the finding (Dilliana et al., 2019; Anike et al., 2017)
RECOMMENDATION
Government should set its priority rights, be more committed to the budget implementation, and pay more attention to capital expenditure geared towards economic development. In the same manner, Government should decisively be proactive and concise about capital investments to avoid abandoned projects. Also, financing of such investment should be within the optimal fiscal deficit level. This will in turn cause the fiscal deficit to bring about a positive impact on economic development
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