THE IMPACT OF FISCAL POLICIES ON THE ECONOMIC GROWTH OF NIGERIA
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Abstract
This study examined the impact of fiscal policy instrument on economic growth in Nigeria using time series annual data from 1981-2014 which constitutes 34 years observations. This study used secondary data obtained from the CBN annual statistical bulletin. Fiscal policy instrument was proxied with government recurrent expenditure, government capital expenditure, public domestic debt, and public external debt while economic growth was proxied with Gross Domestic Product (GDP). The data were analysed using Ordinary Least Square method and vector error correction mechanism was conducted. The study found that recurrent expenditure and public domestic debt exert negative relationship while the capital expenditure and external debt exert positive relationship in the long run on the economic growth (GDP) and in the short-run the entire variables are having positive influence except REC (recurrent expenditure) on the economic growth (GDP). The study recommends that the government should put in place effective debt management strategies and fight the problem of corruption because without a reduction of the level of corruption in the country, fiscal policy components will not achieve the required level of economic growth in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The growth and stabilization of the Nigerian economy has not been stable over the years as a result, the country’s economy has witnesses so many shocks and disturbances both internally and externally over the decades. Internally, the unstable investment and consumption patterns as well as the improper implementation of public policies, changes in future expectations and the accelerator are some of the factors responsible for it. Similarly, the external factors identified are wars, revolutions, population growth rates and migration, technological transfer and changes as well as the openness of the country’s Nigerian economy are some of the factors that could affect the implementation of fiscal policy.
The cyclical fluctuations in the country’s economic activities has led to the periodical increase in the country’s unemployment and inflation rates as well as the external sector disequilibria (Gbosi, 2001). In other words, fiscal policy is a major economic stabilization weapon that involves measure taken to regulate and control the volume, cost and availability as well as direction of money in an economy to achieve some specified macroeconomic policy objective and to counteract undesirable trends in the Nigerian economy (Gbosi, 1998). Therefore, they cannot be left to the market forces of demand and supply as well as other instruments of stabilization such as monetary and exchange rate policies among others, are used to counteract are problems identified (Ndiyo and Udah 2003). This may include either an increase or a decrease in taxes as well as government expenditures which constitute the bedrock of fiscal policy but in reality, government policy requires a mixture of both fiscal and monetary policy instruments to stabilize an economy because none of these single instruments can cure all the problems in an economy (Ndiyo and Udah, 2003).
The Nigeria economy started experiencing recession form early 1980s that leads to a depression in the mid 1980s. This depression continued until early 1990s without recovering from it. As such, the government continually initiated fiscal policy measures that would tackle, stabilize and overcome the dwindling economy. Drawing the experience of the great depression, government policy measure to curb the depression was in the form of increase government spending (Nagayasu, 2003). According to Okunroumu, (1993), the management of the Nigerian economy in order to achieve macroeconomic stability has been unproductive and negative hence one cannot say the Nigeria economy is performing. This is evidence in the adverse inflationary trend, government fiscal policies, undulating foreign exchange rates, the fall and rise of gross domestic product, unfavorable balance of payments as well as increasing unemployment rates are all symptoms of growing macroeconomic instability. As such, the Nigeria economy is unable to function well in an environment because there is low capacity utilization attributed to shortage in foreign exchange as well as the volatile and unpredictable government fiscal policies in Nigeria (Isaksson, 2001).
1.2 STATEMENT OF THE PROBLEM
It is an established fact that market mechanism cannot solely perform all the economic functions in a country; and as such public policy like fiscal policy is required to stabilize, correct, guide and supplement the market forces. Fiscal policyis one of such policies that government uses to correct market imperfections and failure. In Nigeria, governments at various times had used these policies to stabilize and manage the economy with a view to achieving desired macroeconomic objectives such as promoting employment generation, ensuring economic stability, maintaining price stability and balance of payment viability, ensuring exchange rate stability and maintaining stable economic growth. The fiscal policy thrust used in manipulating the economy depends on the objectives that need to be achieved at any time period. Government intervention in the economy through fiscal policy has been to manipulate the receipt and expenditure sides of its budget in order to achieve certain national objectives. The reality however is that often, there have been wastages, some spending has been politicized, and there has been high level misappropriation, mismanagement and corruption. However, the researcher is examining the impact of fiscal policies in stabilization of the Nigeria economy.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
1. To examine the impact of fiscal policies in stabilization of the Nigeria economy.
2. To examine the factors influencing the proper implementation of various fiscal policies in Nigeria.
3. To identify the consequences of the implemented fiscal policies by the government of Nigeria.
1.4 RESEARCH QUESTIONS
1. What is the impact of fiscal policies in stabilization of the Nigeria economy?
2. What are the factors influencing the proper implementation of various fiscal policies in Nigeria?
3. What are the consequences of the implemented fiscal policies by the government of Nigeria?
1.5 HYPOTHESIS OF THE STUDY
The following hypotheses were formulated and tested for the study
H01: recurrent expenditure has no significant impact on the Nigerian economic growth
H02: capital expenditure has no significant impact on the Nigerian economic growth
H03: Public external debt has no significant impact on the growth of Nigeria economy
H04: Public domestic debt has no significant impact on the growth of Nigeria economy
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
1. The outcome of this study will be a useful guide for the government of Nigeria, stakeholder in the financial sector and the general public on how fiscal policies can be used as a tool for the stabilization of the Nigerian economy.
2. This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study on the impact of fiscal policies in stabilization of the Nigeria economy will cover various fiscal policies that has been adopted by the government of Nigeria considering its effect on the stabilization of Nigerian economy.
1.8 LIMITATIONS OF STUDY
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
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