An Evaluation of Budget Deficit on Economic Growth in Nigeria: Empirical Evidence

Abstract

This study evaluates the effect of budget deficit on economic growth in Nigeria from 1985 – 2020. The data used for the study were obtained from Central Bank of Nigeria Statistical Bulletin, Annual Report and publications of the National Bureau of Statistics (NBS). The study applied the Augmented Dickey Fuller (ADF) Unit root and Autoregressive Distributed Lag (ARDL) co-integration and Granger Causality Test. The results revealed that Government Budget Deficit (GBD) has negative and insignificant impact on economic growth; inflation rate (INFL) has positive and insignificant impact on economic growth while government expenditure (GEX) has positive and significant impact on economic growth in Nigeria during the period under study. The R² = 0.97, implying 97% change in economic growth was explained by budget deficit. The empirical finding however, demonstrated that budget deficit has negative effect on inflation and economic growth. The study therefore recommends that fiscal discipline should be strongly adhered to at every level of government since inflation has been established as monetary phenomenon in Nigeria. Based on the study findings, government of this country should pursue policies capable of reducing the size of informal sector which have imposed greater constraint to revenue collection and generation.