Deficit financing and Macroeconomic Performance: the Nigeria experience

Abstract

Due to the mixed order of integration, the study uses the ARDL model to examine the relationship between deficit financing and the performance of the macroeconomy proxy by GDP in Nigeria over a thirty-year period, from 1990 to 2019. In the model, the inflation rate, the government's fiscal deficit, and the domestic money supply served as stand-ins for deficit financing. And the outcome demonstrates that while the model satisfied the sufficient condition of stability, it failed the necessary condition due to an explosive divergence indicator. Additionally, the variables have a long-term relationship, and based on estimates from the long-run equation, all of the variables have a significant impact on the economy, with the domestic money supply having a positive effect and inflation and the government fiscal deficit having a negative impact.