Fiscal policy and economic growth in Nigeria: a granger causality analysis

Abstract

This study is on Fiscal Policy and Economic Growth in Nigeria: A Granger-Causality Analysis. We use time series data (1970-2006) in respect of the independent/explanatory variable [Fiscal Policy, measured using government expenditure (GE)] and the dependent/response variable [Economic Growth, measured using gross domestic product (GDP)], sourced from the Central Bank of Nigeria, were tested and found to be stationary (using Augmented Dickey-Fuller test) and co-integrated (using Johansen’s Cointegration test). Granger causality test was further employed to test for causal relationship between these variables. The result of the analysis shows the existence of causal relationship between them with a unidirectional causality running from GE to GDP, which is in line with a priori expectation. We conclude that in the period under study, fiscal operations in Nigeria, to some extent, caused some economic growth in the country, though the precise extent is a subject of further study. We recommend refocusing Fiscal Policy to ensure: appropriate policy mix, refocusing GE to increase output, increasing government capital/investment expenditure to exceed consumption expenditure, increasing punitive measures against fraud and mismanagement of public funds and raising Nigeria to the status of a producer and exporting nation.