THE IMPACT OF DEFICIT FINANCING ON ECONOMIC DEVELOPMENT IN NIGERIA

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ABSTRACT

This study investigatedthe impact of deficit financing on economic development in Nigeria from 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 in impacting on economic development. Findings also revealed that inflation and labor force are positive and significant in impacting on economic development. 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.

TABLE OF CONTENTS

TITLE PAGE                                                                          i

DECLARATION                                                                     ii

CERTIFICATION                                                                   iii

DEDICATION                                                                        iv

ACKNOWLEDGEMENT                                                       v

ABSTRACT                                                                            vii

TABLE OF CONTENT                                                           viii

APPENDIX                                                                             x

CHAPTER ONE: INTRODUCTION

  1. Background to the Study                                               1
    1. Statement of Problem                                                    4

1.3     Objective of the Study                                                   8

  1. Research Hypotheses                                                     8

1.5     Significance of the Study                                               9

  1. Scope  of the Study                                                       10     
    1. Organization of the Study                                              11

CHAPTER TWO

  • Literature Review: Empirical or Theoretical Framework  12 

          2.1.    Theoretical Framework                                                  24

          2.1.1   Keynesian Theory                                                        24

              2.1.2. Balanced Budget Multiplier                                           28

  • Causes of Deficit Financing                                           31

2.3.    Means of Financing a Budget Deficits                           33

2.4     Net Benefits and Adverse effects associated a Policy

          of Deficit Financing (Budgeting)                                    36

CHAPTER THREE: RESEARCH METHODOLOGY

3.1   Research Design                                                              41     

3.2   Model Specification                                                         41

3.3   Estimation Techniques                                                    43

3.4     Sources of Data Collection                                            46

3.5     Limitations of the study                                                 46

CHAPTER FOUR

4.1     Analysis of Data                                                           48

4.2     Analysis of Result                                                                   48

4.2.1  Empirical Results of the Aggregate Model                     49

4.1.2  Economic Criteria                                                                   50

4.1.3  Statistical Criteria                                                                    52

4.1.4  Econometric Criteria (Second-order test)                       55

4.3     Discussion of Findings                                                  56

4.4     Policy Implication                                                          56

4.5     Test of Hypotheses                                                        57

CHAPTER FIVE: SUMMARY, CONCLUSION AND

POLICY RECOMMENDATIONS

5.1     Summary of Findings                                                    59

5.2     Conclusion                                                                    60

5.3     Policy Recommendations                                               60

REFERENCES                                                              63

APPENDIX                                                                             67

CHAPTER ONE

INTRODUCTION

  1. Background to the Study

All over the world, governments, institutions organizations and individuals use the budget for planning, coordinating and directing their affairs towards the achievement of specific goal and objectives. 

A budget is a forecast of expenditure and revenues for a specific period of time. As a planning document, a budget enables governments, private organizations and household to set priorities and monitor progress towards selected objectives.

A government budget is a plan for the collection and expenditure of monies needed to carry out the social, military and economic policies of an administration for a particular period of time, usually one year.

Deficit financing is a practice in which a government spends more money than it receives as revenue. Although deficit financing  may occur in numerous reasons, the term usually refers to a conscious attempt to stimulate the economy by lowering tax rate or increasing government expenditure. Government expenditure are proposed in finance and authorized in appropriations legislation. A government budget is simply a projection at plan of expenditure to be authorized and of revenue to be raised. The different between revenue and expenditure is called the budget surplus or deficit (Bangs, 1968).

Most government budgets are taken up annually, although a tendency is becoming apparent in many countries to extend the budgeting process over longer periods, or at least to show in budget presentations the future expenditure consequences of long-range programs. For example, in the United States a five year forecast of program cost as now required.

All finance forecast the future because they must be made up well in advance of the period they cover. In the United States, for example, the federal budget is presented to congress each January, covering the fiscal year to begin the following July 1. Fiscal years may correspond with or different from calendar years, depending on custom in individual countries (Bangs, 1968).

Economic development planning has become very popular, particularly every country aspiring to develop now has its multi-year plan by means of which it hopes either to initiate or to accelerate the growth process. These plans range from rather simple advance schedule of pubic expenditure to quite detailed blueprints of what is expected in investment and output in both the public and private sector during the several years ahead planning for economic activity.

The influence of government deficit upon a national economy may be very great. It is widely believed by economist that a budget balance over the span of a business cycle should replace the old idea of an annually balanced budget.

THE IMPACT OF DEFICIT FINANCING ON ECONOMIC DEVELOPMENT IN NIGERIA