EXAMINING CORRELATION BETWEEN FISCAL POLICY AND ECONOMIC GROWTH IN NIGERIA

Abstract

The study examined the correlation between fiscal policy and economic
growth in Nigeria using time series data spanning from 1981 to 2021. The
objective of the study is to ascertain the impact of oil revenue (ORV), non-oil
revenue (NORV), capital expenditure (CEXP), recurrent expenditure (REXP),
domestic debt (DDBT), external debt (EXDBT) and fiscal deficit (FSDT) on
economic growth (RGDP) of Nigeria. The study used longitudinal research
design. ORV, NORV, CEXP, REXP, DDBT, EXDBT and FSDT were used as
proxies of fiscal policy as well as the predictor variables while RGDP a proxy
for economic growth served as the response variable. Data were sourced from
the Central Bank of Nigeria (CBN) 2019 & 2021 Statistical Bulletins, CBN
database and World Bank Development Index. The study employed both
descriptive and inferential (Unit root test, Coinegration, Vector Error
Correction Model (VECM) and Residual diagnostic test) statistics for data
analysis. It was found that all the variables are statistically significant. The
CEXP, DDBT and ORV are positively related while REXP, NORV, EXDBT
and FSDT are negatively related to RGDP. The study concludes that fiscal
policy has significant correlation with economic growth in Nigeria. The study
recommend that effort should be made to improve local revenue generation
and implement fiscal transformations that decrease public debt and deficit
financing to a bearable level as they negatively affect RGDP.