MACROECONOMIC EFFECTS OF BUDGET DEFICIT ON NIGERIA’S ECONOMIC GROWTH

Abstract

This study became necessary because Nigeria has been bankrolling budget deficit for decades in the past, characterized by a high level of external and internal debts. This study therefore seeks to investigate whether or not budget deficit spending plays extraordinary and growing role in achieving full employment, sustainable economic growth, and price stability and poverty reduction in Nigeria. It also seeks to investigate whether or not causal relationship exists between budget deficit and economic growth in Nigeria by adopting the ADF unit root test and ARDL model, Granger Causality test and the short-run diagnostics and stability using annual time series data covering 37 years from 1981 to 2022.The research findings admits that, budget deficit have positive and significant impact on economic growth in Nigeria. Therefore, the government budget deficit has no crowding out effect on investment. The study also discloses that budget deficit has negative and insignificant impact on private investment in Nigeria. Again, additional investigation reals that budget deficit have positive and significant impact on public investment in Nigeria. Furthermore, the research stresses that there is unidirectional causality running from budget deficit to economic growth, private investment and public investment. As a result of the outcome the findings, we recommend that the Government should endeavor to maintain robust fiscal discipline by allocating budget spending to the appropriate sectors of the economy. Again, budget deficit financing should be concentrated on the productive sectors of the economy, so as to ensure sound monitoring of economic policies which are essential to accomplish economic growth.