Effect of Fiscal Policy on Economic Growth in Nigeria
Abstract
This study examined the effect of fiscal policy on economic growth in Nigeria covering the period 1986–2024. Specifically, the study investigated the effect of government expenditure, government revenue, and public debt on economic growth, while inflation rate and exchange rate were included as control variables. Secondary data were sourced from relevant statistical publications and analyzed using descriptive statistics, Augmented Dickey-Fuller (ADF) unit root test, ARDL Bounds cointegration test, long-run and short-run ARDL estimations, Pairwise Granger causality test, and diagnostic tests. The unit root test results revealed that GDP, government expenditure, government revenue, public debt, and exchange rate were integrated of order one I(1), while inflation was stationary at level I(0). The Bounds cointegration test confirmed the existence of a long-run relationship among the variables. The long-run ARDL result showed that government expenditure and government revenue exert positive and statistically significant effects on economic growth, while public debt, inflation, and exchange rate exerted negative but insignificant effects. The short-run result revealed that inflation and exchange rate negatively affected economic growth significantly, while the error correction mechanism indicated that approximately 61 percent of short-run disequilibrium adjusts annually toward long-run equilibrium. The Granger causality result indicated a unidirectional causality from economic growth to government expenditure and from inflation to economic growth. The study concluded that fiscal policy plays an important role in promoting economic growth in Nigeria, particularly through productive government expenditure and effective revenue generation. The study recommended increased productive public expenditure, improved revenue mobilization, prudent debt management, exchange rate stabilization, and effective inflation control measures to enhance sustainable economic growth.