ABSTRACT
This study investigates the impact of deficit financing on economic development in Nigeriafrom 1980-2017 using data from Central Bank of Nigeria statistical bulletin (2018). The study adopted the Ordinary Least Square (OLS) method estimation technique to conduct quantitative analysis. The results of this study were analyzed using economic a priori criteria, statistical criteria and econometric criteria. Findings as analyzed in the empirical result of aggregate model revealed that budget deficit and gross fixed capital formation are negative and insignificant impacting on economic development, indicating that these variables are non determinants of economic development in Nigeria. Findings also revealed that inflation and labor force are positive and significant impacting on economic development, indicating that these variables are determinants of economic development in Nigeria.The study recommends that government should mobilize funds from the surplus spending units to the deficit spending units to boast economic development in Nigeria. The study also recommends that there is need for government to set up monitoring teams that will make sure that the budget is well and carefully implemented to avoid mismanagement of funds.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Research Design
This study adopts the ex post facto research design. The decision was premised on the efficiency with which Ex-post Facto research procedure utilizes both theoretical and empirical theses simultaneously toexamine the impact budget deficit on economic development in Nigeria using time series data from 1980-2017.
3.2 Model Specification
The model specification is anchored on the balance budget multiplier theory. This theory measures the change in aggregate production triggered by an autonomous change in government taxes. Therefore, based on this theoretical foundation, the empirical model for this study is specified functionally as follow.
RGDP = f (BD,GFCF, INF, LF) —————————————3.1
Where:
GDP =Real Gross Domestic Product
GFCF =Gross fixed capital formation.
INF = Inflation
LF = Labor Force
The models in equation 3.1 can be written in a linear form as follow.
RGDP = α0+ α1BD + α2GFCF + α3INF + α4LF +U1——————–3.2
Where: α0 to α4and β0 to β4 are the parameters to be estimated
U1 is stochastic error terms.
The a priori expectations about the signs of the coefficients of the parameters are as follows: α1, β1< 0 and α2, β2 , α3, β3> α4, β4 > 0
3.3 Estimation Techniques
The study adopts the Quantitative Econometrics Analysis using the Scientific Method of Ordinary Least square (OLS) regression technique to determine the impact of budget deficit on economic development in Nigeria using time series data from 1980-2017.The reason for employing the classical Ordinary Least Squares (OLS) is that of all classes of estimators, the Ordinary Least Squares (OLS) is the Best Linear Unbiased Estimator (BLUE) and it has minimum error.Therefore, the empirical findings of this study will be analyzed using three criteria, namely, economic a priori criteria, statistical criteria and econometric criteria:
(i) Economic a Priori criteria
This is determined by the principles of economic theory and refers to the sign and the size of the parameters of economic relationship. In other words, it has to do with determining whether the estimates conform to the stated expected signs as predicted by the relevant economic theory. However, if the estimates of the parameters turn up with signs or size not conforming to economic theory, they should be rejected, unless there is good reason to believe that in the particular instance the principles of economic theory do not hold.
