Econometric Analysis Of The Impact Of Fiscal Policy Variables On Nigeria'S Economic Growth (1970 - 2009)

Abstract

This study seeked to investigate the impact of fiscal policy variables on Nigeria's economic growth between 1970 and 2009. In order to reduce the problem of stationarity usually associated with time series data, we adopted the arcane method of Vector Auto Regression (VAR) and error correction mechanism techniques. The result revealed that there exist a long-run equilibrium relationship between economic growth and fiscal policy variables in Nigeria. Also, own shocks constitute a significant source of variations in economic growth, the forecasted errors in the short-run, range from 76 percent to 100 percent over a 10 years horizon while the response of the GDP to one standard innovation in government expenditure is negative in the short-run except in period 2. Furthermore, tax revenue shocks have effect on the GDP in the short and long run. Above all, the response of GDP to one standard innovation in capital inflow is positive in the short-run. Consequently, it is recommended that government should formulate
and implement viable fiscal policy options that will stabilize the economy. This
could be achieved through the practice of true fiscal federalism and the
decentralization of the various levels of government in Nigeria. It further
suggested that there should be consistency in macroeconomic policies
implementation in the non-oil sectors of the economy by providing relevant
incentives to foreigners wishing to invest in the agricultural sector and
manufacturing sectors in Nigeria. More importantly, there should be appropriate macroeconomic policy mix in managing the economy.