THE IMPACT OF FISCAL DEFICIT ON ECONOMIC PERFORMANCE IN DEVELOPING COUNTRIES: A CASE STUDY ON NIGERIA

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ABSTRACT

This study examined the impact of fiscal deficit on economic performance in Nigeria covering the period 1980-2020. Multiple regression models were estimated using the ordinary least squares (OLS) method and findings revealed that fiscal deficit significantly impacted on economic performance in Nigeria. Specifically, at 5% level of significance, fiscal deficit negatively and significantly impacted on economic growth and balance of payments, while it positively and significantly impacted on inflation and unemployment rates. The adjusted coefficients of determination for the estimated models showed that the estimated models have good fit. The high values of the F-statistics of the estimated models indicate that the parameters of the estimated models are jointly or simultaneously statistically significant. The values of the Durbin-Watson (d) statistics of the estimated models revealed absence of first-order autocorrelation in the estimated models; suggesting that the regression outputs are not spurious.It was therefore recommended that; in the occurrence of fiscal deficits in the Nigerian economy, the threshold should not be more than 5% as this is the level conducive for economic growth, in achieving 5% fiscal deficit threshold, the Nigerian government should adopt policies capable of expanding industrial output such as price control and rationings to ensure that fiscal deficits does not lead to a very high rates of inflation and unemployment, fiscal and monetary policies should be integrated in a way that neither the public nor the private sector is handicapped due to finance shortage for productive activities.

TABLE OF CONTENT

TITLE PAGE       –        –        –        –        –        –        –        i

CERTIFICATION         –        –        –        –        –        –        –        ii

DEDICATION     –        –        –        –        –        –        –        ii

ACKNOWLEDGEMENT       –        –        –        –        –        iv

ABSTRACT        –        –        –        –        –        –        –        vi

TABLE OF CONTENTS                  –        –        –        –        –        vii

LIST OF TABLES         –        –        –        –        –        –        xi

CHAPTER ONE: INTRODUCTION

1.1 Background to the study   –        –        –        –        –        1

1.2 Statement of the problem  –        –        –        –        –        3

1.3 Objectives of the study      –        –        –        –        –        7

1.4 Research hypothesis                   –        –        –        –        –        7

1.5 Significant of the study     –        –        –        –        –        8

1.6 Scope of the study   –        –        –        –        –        –        9

1.7 limitation of the study       –        –        –        –        –        9

CHAPTER TWO: LITERATURE REVIEW

2.1     Empirical literature on fiscal deficit and selected

macroeconomic variable          –        –        –        –        –        10

2.2 Theoretical literature                   –        –        –        –        –        22

2.2.1 The Keynesian theory    –        –        –        –        –        22

2.2.2 The monetarist theory    –        –        –        –        –        24

2.2.3 The Ricardian equivalence theory      –        –        –        25

2.3 Macroeconomic framework of fiscal deficit    –        –        27

2.4 Fiscal Deficit and Unemployment in Nigeria           –        30

2.5 Fiscal Deficit and Inflation in Nigeria             –        –        33

2.6 Fiscal Deficit and Balance of Payment in Nigeria    –        38

2.7 The Trend of Fiscal Deficit and Economic Performance in Nigeria 42

2.8 Fiscal Deficit and Economic Stabilization in Nigeria                  47

2.9 Overview of Nigeria Fiscal Performance     –           –        53

CHAPTER THREE: RESEARCH METHODOLOGY

3.1     Research design   –        –        –        –        –        –        56

3.2     Model specification        –        –        –        –        –        56

3.2.1  Regression model for the impact of fiscal deficit on

economic growth  –        –        –        –        –        –        57

3.2.2  Regression model for the impact of fiscal deficit on

inflation rate                  –        –        –        –        –        –        58

3.2.3  Regression model for the impact of fiscal deficit on unemployment rate    –        –        –          –        –        58

3.2.4  Regression model for the impact of fiscal deficit on

balance of payments      –        –        –        –        –        59

3.3     Sources of data    –        –        –        –        –        –        60

3.4     Methods of data analysis                  –        –        –        –        60

3.4.1 Coefficient of determination (R2)      –        –        –        61

3.4.2 Adjusted R-squared       –        –        –        –        –        61

3.4.3 The F-statistic test                   –        –        –        –        –        62

3.4.4 t-statistic test        –        –        –        –        –        –        62

3.4.5 Durbin–Watson (D-W) statistic                  –        –        –        62

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS OF RESULTS

4.1     Data presentation          –        –        –        –        –        64

4.2     Presentation and analysis of results  –        –        –        65

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1     Summary of Findings    –        –        –        –        –        76

5.2     Conclusion           –        –        –        –        –        –        77

5.3     Recommendations                   –        –        –        –        –        78

REFERENCES    –        –        –        –        –        –        80

APPENDIX          –        –        –        –        –        –        –        87