Fiscal Policy and Economic Performance in Nigeria

Abstract

This study examines the impact of fiscal policy on economic performance in Nigeria, focusing on government expenditure and government borrowing as fiscal dimensions, with gross domestic product (GDP) serving as the indicator of economic performance. Employing an expost facto research design, the study utilized annual time-series data spanning 1981 to 2024 sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics (NBS), and World Bank Development Indicators. The Generalized Method of Moments (GMM) estimation technique was adopted due to its robustness in addressing issues of endogeneity, heteroskedasticity, and autocorrelation in dynamic time-series data. To ensure the validity and stability of the model, diagnostic tests such as the Jarque-Bera test for normality, histogram normality test, and the actual-fitted residual graph were employed. The findings reveal that government expenditure has a positive and statistically significant effect on GDP, suggesting that increased public spending stimulates economic growth. In contrast, government borrowing exerts a negative and significant effect, indicating that excessive reliance on debt undermines economic performance through repayment burdens and possible crowding-out effects. The study concludes that fiscal policy plays a critical role in Nigeria’s growth trajectory and recommends efficient allocation of expenditure and sustainable debt management for long-term economic stability.