THE EFFECTS OF FISCAL DEFICITS IN DEVELOPING COUNTRIES:
IMPLICATIONS ON THE ECONOMIC GROWTH OF NIGERIA.
Miftahu Idris, Rosni Bakar and Tunku Salha Tunku Ahmad
Volume - 2 Issue - 9, Pages - 4497-4520
This study examines the effects of fiscal deficits on economic growth of the Nigerian economy.
The study explore the trend of fiscal deficits over the three decades and showcase its
implications on output growth and other macroeconomic indicators. While the issue of fiscal
balance remain a prime macroeconomic objective of the Nigerian economy, fiscal deficit has
serious implications on the economic and social welfare of a given economy. The study adopts
the VAR technique and Johansen cointegration test to determine the possible existence of longrun
relationship and other impacts among the variables. Estimated result from the Johansen
cointegration test indicates two cointegrating relations between the variables as revealed by both
the trace statistics and the maximum eigen value, while the error term is found to be negative and
significant indicating a moderate convergence to the long-run equilibrium. It is established by the
trend analysis that fiscal deficit adversely affects output growth rates and this situation has been
prominent in the domestic economy from the last three decades. Other empirical results show
evidence in favour of the negative effect of deficits on economic growth within the sample
period. This result is consistent with the epistemological approach of neo-classical theory which
established that deficit has growth-retarding effects on the economy. There is need for
appropriate accountability in the public sector such that all spending are justified, and
government activities are directed in accordance with the principles of equity and efficiency.
Cite this Article:
[Idris, Miftahu, et al. "THE EFFECTS OF FISCAL DEFICITS IN DEVELOPING COUNTRIES: IMPLICATIONS ON THE ECONOMIC GROWTH OF NIGERIA." International Journal of Social Science and Economic Research, vol. 2, no. 9, 2017, pp. 4497-4520. September.]
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