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
- Background to the Study 1
- Statement of Problem 4
1.3 Objective of the Study 8
- Research Hypotheses 8
1.5 Significance of the Study 9
- Scope of the Study 10
- 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
- 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.
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