Fiscal dominance and economic performance in Nigeria (1980-2020)
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Date
2023
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Department of Economics, Faculty of Social Sciences, Obafemi Awolowo University.
Abstract
The study examined the nature and extent of fiscal and monetary policy dominance in Nigeria as well as the degree of fiscal dominance or monetary effectiveness in Nigeria. The study also examined the sustainable level of fiscal deficit with respect to the economic performance in Nigeria within the period of 1980-2020. These are with a view to examining the relationship between fiscal dominance and economic performance in Nigeria.
Annual time series secondary data for the period of 1980-2020 were employed in the study. Data on fiscal deficit, public debt, government expenditure, money supply, interest rate, and real Gross Domestic Product (GDP) for the study period were obtained from the Central Bank of Nigeria (CBN, 2020), and the World Development Indicators (WDIs, 2020) sourced from the World Bank. The study used descriptive statistics in form of tables, charts and graphs for
the trend analysis. The study also adopted Dynamic Ordinary Least Squares (DOLS) for long run analysis, while threshold regression was also conducted for the measurement of sustainable
level of fiscal deficit in Nigeria.
It was established in the study that government expenditure and outstanding debt have significant positive relationship with money supply. Specifically, N1 billion increase in public debt is expected to increase money supply by N1.2 billion (t = 8.2446, p < 0.01). Similarly, N1 billion increase in government spending will cause money supply to increase by N1.36 billion (t = 4.2850, p < 0.01). Conversely, interest rate exhibited negative effect on money supply, such that one percent increase in interest rate will bring money supply down by 150 percent (t = -2.0113, p < 0.05). The study also revealed the sustainable level of fiscal deficit in relation to economic performance in Nigeria. Specifically, the results showed that when fiscal deficit
is lower than N34.4072 billion, it will decrease economic output by N34.7001 billion. (t = 3.21, p < 0.01) and that when fiscal deficit is higher than N34.4072 billion and lower than N1,923.637 billion, it will not only have a positive impact on economic performance but it will
also increase economic output by N4.0023 billion (t = 3.69, p < 0.01).
The study concluded that, though there is co-movement between fiscal and monetary authority variables, there is no fiscal dominance in Nigeria.
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xiii, 125p
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Citation
Idowu, A.O. (2023). Fiscal dominance and economic performance in Nigeria (1980-2020). Department of Economics, Faculty of Social Sciences, Obafemi Awolowo University.