Abstract
The debate regarding the role of fiscal decentralization in promoting economic growth and by extension, improving the wellbeing of the people, has been at the front burner in macroeconomic policy discuss. Studies have attempted to establish the direct interaction for most countries and regions, but not many conclusions have converged, hence necessitating this study. This study, therefore, re-examined the effect of decentralization on economic growth in Nigeria. Using fiscal decentralization data, (which included expenditures for national, subnational and local government) and other control variables, sourced from mainly secondary sources (World Development Indicators [WDI] and Central Bank of Nigeria’s [CBN] Statistical Bulletin various years) and employing basic OLS technique and Error Correction Mechanism (ECM), the results showed, amongst other issues, that fiscal decentralisation may not directly impact on economic growth, but the effects can be transmitted through efficient economic management process, which may be a product of effectively-managed fiscal decentralization processes. The study, therefore, recommended, amongst other things, that efficient systems should be promoted in the decentralization process to enhance economic growth. Viable human capital/infrastructure base should be built to drive as well as enhance productive fiscal decentralization, through strategic policies finetuning, and finally, check inflation and corruption, amongst other ills, if growth must be actualized and sustained.
Highlights
Background to the StudyIntroductionEconomic history, political conditions and regional differentials constitute a major issue in fiscal relations between various tiers of government
One fact stands out from the review so far, and that is the fact that there is paucity of literature in this area of interest as it concerns Sub-Saharan Africa, and very insignificant as regards country-specific in Nigeria, except for the works of [25, 26, 2, 23], that focused more on the traditional issues of fiscal federalism, and recently [65, 88, 89, 64], that focused on fiscal decentralization and economic Growth
The results indicate that apart from GDP Growth Rate (GDPGR), OPN and Physical Capital (PHCAP) which were stationary at levels [I(0)] and at first difference [I(1)], and Population Growth Rate (POPGR) that was stationary only at levels [I(0)], there rest of the variables in the model were stationary at first difference [I(0)] only
Summary
Political conditions and regional differentials constitute a major issue in fiscal relations between various tiers of government. Fiscal decentralization is the devolution of powers on fiscal matters from the central government to the sub-national governments It entails increasing the relative autonomy for expenditure and revenue to the other federating units. National statistics system, guidelines and basis for minimum education, business registration and price control Despite such concentration of responsibility at the centre, the federal government still shares major assigned expenditure with the state government. These include expenditure on health, social welfare, education (post primary/tertiary), culture, antiquities, statistics, stamp duties, commerce, industry, electricity (general, transmission, distribution), and research surveys, aside residual power or responsibility that the state handles alone.
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