Impact of Budget Deficit on Nigeria’s Macroeconomic Variables: 1980-2012

Abstract

This study investigated the impact of budget deficit on macroeconomic variables of Nigeria, covering the period, 1980-2012.The study was informed by the need to solve the problem of ever-increasing huge budget deficit in the face of weak economic growth and macroeconomic performance. Employing the two stage least square, data analyses were carried out to cover the unit root, granger causality and co integration tests to produce five statistically significant models viz-a viz the budget deficit and economic growth model, the budget deficit and real interest rate effect model, the budget deficit and inflation rate effect model, the budget deficit and investment effect model, and the budget deficit and real exchange rate effect model. It was found out that budget deficits have significant negative relationship with gross domestic product growth rate, real private investment, inflation rate, real exchange rate and positive significant relationship with real interest rates. Thus, the study concludes on the basis of these findings that budget deficit financing has not engendered the required growth in the Nigerian economy and therefore should be reduced.