An Investigation of Causal Relationship between Fiscal Deficits, Economic Growth and Money Supply in Nigeria (1970-2009)/UNE ENQUETE DE LA RELATION CAUSALE ENTRE LE DEFICIT BUDGETAIRE, LA CROISSANCE ECONOMIQUE ET LA MASSE MONETAIRE AU NIGERIA (1970-2009)

By Maji, Abu; Bagaji, Ali S. Yusufu et al. | Canadian Social Science, March 1, 2012 | Go to article overview

An Investigation of Causal Relationship between Fiscal Deficits, Economic Growth and Money Supply in Nigeria (1970-2009)/UNE ENQUETE DE LA RELATION CAUSALE ENTRE LE DEFICIT BUDGETAIRE, LA CROISSANCE ECONOMIQUE ET LA MASSE MONETAIRE AU NIGERIA (1970-2009)


Maji, Abu, Bagaji, Ali S. Yusufu, Etila, Moses Shaibu, Sule, Jafa'aru Garba, Canadian Social Science


Abstract

This study posits to investigate the relationship between fiscal deficits, economic growth and money supply in Nigeria. In Nigeria, huge fiscal deficits had been recorded over some years. What has been the nature of the relationship between fiscal deficits, economic growth and money supply in Nigeria? To answer this question, Granger causality test was conducted to see whether fiscal deficits granger cause economic growth and money supply or economic growth and money supply granger cause fiscal deficits. The results show that fiscal deficits granger causes economic growth and broad money supply in Nigeria. This implies that fiscal deficits positively affect economic growth and money supply in Nigeria. It is therefore recommended that fiscal deficits should be undertaken with efficient and well-executed plan for economic development. Furthermore, fiscal and monetary policies should be coordinated in such a way that both the public or private sector of the economy should not be handicapped due to shortage of finance and at the same time, inflation is checked in the economy.

Key Words : Fiscal deficits; Economic growth; Money supply; Public expenditure; Public revenue; Granger causality

Résumé

Cette étude est dans le but d'étudier la relation entre les déficits budgétaires, la croissance économique et la masse monétaire au Nigeria. Au Nigeria, d'énormes déficits budgétaires ont été enregistrés en quelques années. Quelle a été la nature de la relation entre les déficits budgétaires, la croissance économique et la masse monétaire au Nigeria? Pour répondre à cette question, le test de causalité de Granger a été mené afin de voir si les déficits budgétaires granger provoquer la croissance économique et l'offre de l'argent ou la croissance économique et l'offre de monnaie granger provoquer des déficits budgétaires. Les résultats montrent que l'exercice granger déficits provoque la croissance économique et de l'offre monétaire au sens large du Nigeria. Cela implique que les déficits budgétaires influer positivement sur la croissance économique et l'offre de monnaie au Nigeria. Il est donc recommandé que les déficits budgétaires devraient être entrepris au plan efficace et bien exécutée pour le développement économique. En outre, les politiques budgétaires et monétaires doivent être coordonnés de manière à ce que le secteur public ou privé de l'économie ne devrait pas être handicapé en raison d'un manque de finances et dans le même temps, l'inflation est vérifiée dans l'économie.

Mots Clés: Déficits budgétaires; La Croissance économique; La masse monétaire; Les dépenses publiques; Les recettes publiques; La Causalité de Granger

INTRODUCTION

Government as an agent of the people requires revenue to provide education, employment, adequate health services, infrastructure and good roads but in the process of discharging this enormous responsibility, the revenue and/or spending requirements of the government may sometimes outstrips its availability, hence the recourse to deficit financing so as to fill the gap between expenditure needs and revenue availability. A deficit would arise whenever expenditure surpasses revenues. The growth and persistence of fiscal deficits in both the industrialized and developing countries in some years have brought the issue of fiscal deficits into sharp focus. The issues surrounding fiscal deficits are certainly not new, but the economic development of the past decade has rekindled the interest in fiscal policy issues.

Recurring and rising budget deficits have been a dominant feature of fiscal operations in Nigeria since the second half of the 1970s. The impact of fiscal deficits on economic activity has been one of the subjects of longstanding debate in macroeconomics. Due to expansionary fiscal policies prompted by the favorable oil prices in the international market, expenditure rising faster than revenue, deficits grew from an average of 5. …

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An Investigation of Causal Relationship between Fiscal Deficits, Economic Growth and Money Supply in Nigeria (1970-2009)/UNE ENQUETE DE LA RELATION CAUSALE ENTRE LE DEFICIT BUDGETAIRE, LA CROISSANCE ECONOMIQUE ET LA MASSE MONETAIRE AU NIGERIA (1970-2009)
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