Deficit Financing And The Growth Of Nigeria Economy

Author(s)

Anastasia. Chi-Chi , Onuorah , Dr Ogbonna Gabriel Nkwazema ,

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Volume 3 - February 2014 (02)

Abstract

The general objective of the study is to analyze the effect of Deficit Financing on the economy. In order to understand whether or not Deficit Financing impacts on economic growth. The study utilized data from publications of the Central Bank of Nigeria Statistical Bulletin between 1981- 2012. The paper applied descriptive statistics, OLS, Diagnostic test, ADF unit root, Johansen Co-integration and pairwise Granger causality test and the findings shows that the variables were stationary at first difference data 1(1). The variables were jointly co-integrated at 5% level. Showing that Deficit Financing were seen to be statistically significant and positively related to economic growth in Nigeria. This suggests that both domestic debt and external debt liability contributes effectively to the settlement of Nigeria debt. In Nigeria with respect to the regression result, it is apparent that domestic debt and external debt remains the crucial source of financing Nigeria debt. The study therefore concluded that so far as a long-run equilibrium relationship exists between the dependent and independent variables, and has assumed that the deficit financing assert sufficient influence on the growth in the debt management and services in Nigeria. From these affirmation findings, this research suggests appropriate combination of internal and external debt ratio with a close monitoring situation. We recommended that the Policy makers should control the level of deficits to ensure that it is within this level. Also, a decrease is required in the level of the deficits could strengthen the exchange rate, and control inflationary pressure in Nigeria. 

Keywords

Deficit Financing, Domestic debt, External debt, Gross domestic product

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