Government Budget Deficit and Economic Performance in Nigeria

Abstract:

This study examined the influence of government budget deficit on economic performance

in Nigeria. The study captures government budget deficit with budget deficit ratio (Bdr)

and economic performance with real domestic product (RGDP). Budget deficit ratio

measures the ratio of Nigeria’s national debt to its gross domestic product while real GDP

measures the value of economic output adjusted for price changes. To estimates the influence

of government budget deficit on economic performance, the study employed simple

Keynesian model which was modified to capture variables of interest using annual data

that span the periods 1970 to 2013. The study further investigates if there is any causal

relation and significant correlation between government’s budget deficit and economic

performance. From the investigations on the influence of government budget deficit on

economic performance in Nigeria, we observed that government budget deficit (Bdr) has

significant and positive impact on economic performance (RGDP), indicating that increase

government deficit financing result to increase in economic performance instead of a fall in

output, which may have resulted from crowding-out investment. Furthermore, the results on

the causality test reveal a unidirectional causality running from government budget deficit to

economic performance, which implies that government deficit financing granger causes Nigerian

economic performance. In like manner, further investigation also show a positive and significant

correlation between government budget deficit and economic performance in Nigeria. Hence,

from the findings, deficit financing is not a bad policy option. If appropriately adopted, it will

boast the economic activities and output growth and as well create more job opportunities. With

these findings, the study supports the postulate of Keynesian theory of budget deficit which

contradicts Ricardian understanding of budget deficit.