Comparative impact of fiscal and monetary policies on economic growth in Nigeria

Abstract

This work examined the comparative impact of fiscal policy and monetary policy on economic growth in Nigeria over the period 1981 to 2021 using annual time series data on real gross domestic product, broad money supply, government expenditure, total government revenue, and interest rate (lending rate). The objectives are to determine whether the fiscal policy or the monetary policy impacts more on economic growth in Nigeria and to ascertain the causality relationship between fiscal policy, monetary policy and economic growth in Nigeria over the period. The study employed ARDL Bounds Testing methodology in determining whether long run relationship exists between fiscal policy (proxy government expenditure and total government revenue), monetary policy (proxy broad money supply and interest rate (lending rate) and real gross domestic product. The result indicated that broad money supply representing monetary policy has positive relationship with and statistically significant impact on economic growth in Nigeria over the study period as indicated by its t-statistic and probability values of 6.436365 and 0.0000 respectively. Fiscal policy variable (government expenditure), on the other hand, has negative relationship with economic growth and statistically significant impact on economic growth in Nigeria as indicated by its t-statistic and probability values of -2.427968 and 0.0234 respectively. From the result, a change in money supply (monetary policy) affects economic growth positively while a change in Fiscal policy variable (government expenditure) affects economic growth negatively. Besides, the coefficient of monetary policy (0.457048) is greater than fiscal policy coefficient (-0.300554) and implies that monetary policy impacts more than fiscal policy impacts on economic growth in Nigeria. Therefore monetary policy does impact more than Fiscal policy on economic growth in Nigeria over the period studied. The result further indicated that there is no significant causality relationship between fiscal policy, monetary policy and economic growth in Nigeria over the period covered as indicated by the probability values of both fiscal and monetary policy variables employed and economic growth. The study therefore recommends that policy makers should focus more on monetary policy than fiscal policy so as to enhance economic growth since monetary policy has more concern with economic growth than fiscal policy. Keywords: Economic growth, fiscal policy, monetary policy, ARDL, Bound Test, Causality, Nigeria.