Abstract
This paper is set out to investigate monetary and fiscal policy has tools for economic growth in Nigeria and to also investigate which of this tools is most appropriate in the Nigerian present state of economy using time series data spanning from 1981 to 2014. The application of the ECM and granger causality test reveals that total government expenditure (TGE) has a positive and a significant influence in promoting economic growth which canvass support for the Keynesian that increase in government expenditure is a key instrument in promoting economic growth and hence crowd in private investors in Nigeria. While on the other hand, increase in total money supply (TMSS) is negatively significant to economic growth which contradict the opinion of the monetarist. sequel to this, it is however glaring that increase in government expenditure play a lead role in stimulating economic growth in the long run In Nigeria. Based on our finding, we recommend that policy makers should ensure that the large quantum of fund flowing from the government pulse should be apportion asymmetrically to the productive sector of the economy like the manufacturing sector, agricultural sector, and SME’s (small and medium enterprises) among others so as to ensure fruitful returns from this investment which will in turn promote economic growth and encourage private investors as earlier stated by the Keynesian school.
Highlights
One begin to wonder the rationale behind the loafs of argument that emanate between the Keynesian school and the monetarist as to which of the tools is superior or has a greater influence in stimulating economic growth especially when an economy is undergoing serious threat
Keynes recommended this in the United States when the unemployment rate reaches about 25% and the level of output drop to about 30%. He argues that expansionary fiscal policy will be used in boosting up the rate of economic performance especially during recession when the nature of the economic growth is in a negative shape. owing to this, he stated that increase in government spending and or reduction in taxes would be a better tools in stimulating economic growth by promoting production, Monogbe Tunde Gabriel and Davies Nkanbia Llewellyn: Monetary and Fiscal Policy, Tools for Economic Growth
The result of the total money supply (TMSS) show a significant but negative relationship to economic growth which implies that 1% change in the TMSS will lead to about 162.4 unit decrease in the economic growth and vice versa all things been equal
Summary
One begin to wonder the rationale behind the loafs of argument that emanate between the Keynesian school and the monetarist (neoclassical) as to which of the tools is superior or has a greater influence in stimulating economic growth especially when an economy is undergoing serious threat (depression). Contrary opinion was fluent by Ricardo who argues that increase in government expenditure nor money supply is irrelevant He justifies is argument by emphasizing that when government take care of her deficit by reducing tax and increasing borrowing, the tax reduced today will be paid for in double fold in the nearest future. The ideal of expansionary fiscal policy is introduced by john Maynard Keynes around (1930) who argues that government could amend or change the nature of the economic performance by adjusting tax rate and government spending. Keynes recommended this in the United States when the unemployment rate reaches about 25% and the level of output drop to about 30%. He argues that expansionary fiscal policy will be used in boosting up the rate of economic performance especially during recession when the nature of the economic growth is in a negative shape. owing to this, he stated that increase in government spending and or reduction in taxes would be a better tools in stimulating economic growth by promoting production, Monogbe Tunde Gabriel and Davies Nkanbia Llewellyn: Monetary and Fiscal Policy, Tools for Economic Growth
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