IJSTR

International Journal of Scientific & Technology Research

IJSTR@Facebook IJSTR@Twitter IJSTR@Linkedin
Home About Us Scope Editorial Board Blog/Latest News Contact Us
CALL FOR PAPERS
AUTHORS
DOWNLOADS
CONTACT
QR CODE
IJSTR-QR Code

IJSTR >> Volume 1 - Issue 8, September 2012 Edition



International Journal of Scientific & Technology Research  
International Journal of Scientific & Technology Research

Website: http://www.ijstr.org

ISSN 2277-8616



Fiscal Deficits And Inflation In Nigeria: The Causality Approach

[Full Text]

 

AUTHOR(S)

Ozurumba Benedict Anayochukwu

 

KEYWORDS

Keywords: fiscal deficit, inflation rate, macroeconomic, monetary policy, Granger-causality , autoregressive distributed lag

 

ABSTRACT

Abstract :- This paper examines the causal relationship between inflation and fiscal deficits in Nigeria, covering the period 1970-2009. This was carried out by way of developing an estimation model of inflation and fiscal deficit, with a view to testing causes and effects as well as the relationship between them. The estimation technique used is the autoregressive distributed lag (ARDL) model and the Granger-causality test. The result of the Granger-causality test shows that the null hypothesis which says that fiscal deficit does not cause inflation should be rejected since the result is significant with probability less than 0.05. This implies that fiscal deficit/GDP causes inflation. However, no feedback mechanism was observed. The results from the ARDL test confirm a significant negative relationship between growth in fiscal deficit (% of GDP) and inflation. The above results confirm the a priori expectation. It is recommended that policies targeted at inflationary control in Nigeria could best be achieved if they are aimed at fiscal deficits reduction. In addition, the government should support growth in the real sectors of the economy.

 

REFERENCES

1. Aghevei, B. and Khan, M.S.(1978). “Government Deficits and Inflationary Process in Developing Countries”, International Monetary Fund (IMF) Staff Papers, vol.25 (September). Washington, D.C, The IMF.

2. Ariyo, A and Raheem M.I (1991): Effect of Fiscal Deficit on some macroeconomic aggregates in Nigeria, Nairobi, African Economic Research Consortium (AERC)

3. Blejer, M.S. and Khan, M.S. (1984). “Government Policy and Private Investment in Developing Countries” International Monetary Fund (IMF) Staff Papers, vol.31 No.2, Washington, D.C., The IMF.

4. Cebula, R.J. (2000), “Impact of Budget Deficits on Ex-Post Real Long-Term Interest Rates”, Applied Economics Letters, Vol. 7, No, 3, Pp.177-79.

5. CBN (2009). Annual Report and Statement of Account, Abuja, Central Bank of Nigeria.

6. CBN (2009). Statistical Bulletin, Abuja, Central Bank of Nigeria.

7. Darrat, A. F. (1985), “Inflation and Federal Budget Deficits: Some Empirical Results”, Public Finance Quarterly, Vol. 13, pp. 206-215.

8. Darrat, A. F. (2000), “Are Budget Deficits Inflationary? A Reconsideration of the Evidence”, Applied Economics, Vol. 7, No. 10, pp. 633-36.

9. Dwyer, G. P. (1982), “Inflation and Government Deficits”, Economic Inquiry, Vol. XX, pp. 315-329.

10. Easterly, W. and Schmidt-Hebbel, K. (1993): “Fiscal Deficits and Macroeconomic Performance in Developing Countries”, Washington D.C., World Bank Research Observer, vol.8 No.2.

11. Ebiringa, T.O. (1998). “The Macroeconomic Impact of Public Sector Deficits: An Empirical Study of Nigeria (1988 –1997)”, Unpublished M.Sc. Research Work, Owerri, FUTO.

12. Ekwaikhide, F.O. et al (1997). “Effects of Budget Deficits on Current Account Balance in Nigeria: A Simulation Exercise”, Research Paper No. 70, Nairobi, African Economic Research Consortium (AERC).

13. Eisner, R. (1989), “Budget Deficits: Rhetoric and Reality”, Journal of Economic Perspectives, Vol. 3, pp. 73-93.

14. Friedman, M. (1968), “The Role of Monetary Policy”, American Economic Review, Vol. 58, pp. 1-17.

15. Heller, P.S. (1980). “Impact of Inflation of Fiscal Policy in Developing Countries” International Monetary Fund (IMF) Staff Papers, vol.39, No.3, Washington, D.C, The IMF.

16. Hill, R.C, Griffiths, W.E and Lim, G.C. (2008): Principles of Econometrics, 3rd Edition, Hoboken USA, Willey and Sons, Inc.

17. Metin, K. (1995), “An Integrated Analysis of Turkish Inflation”, Oxford Bulletin of Economics and Statistics, Vol. 57, Pp. 513-533.

18. Miller, J. P. (1983). “Higher Deficit Policy Leads to Higher Inflation” Federal Reserve Bank of Minneapolis – Quarterly Review, winter.

19. Nwaogwugwu, I.C. (2005). “Public Expenditure and Fiscal Deficits in Nigeria” In Fakiyesi, O.O and Akano, S. O. (eds) Issues in Money, Finance and Economic Management in Nigeria, Yaba, University of Lagos.

20. Obadan, M. I. and Uga, E. O. (1996). In Policy Analysis Series, NCEMA.

21. Olomola, P.A and Olagungu M. A. (2004) “Fiscal Deficit and private consumption behaviour in Nigeria: 1970-2001. The Indian Journal of Economics; Vol. LXXXIV, No 335, Pp 597-607

22. Oyejide, T.A. (1972), “Deficit Financing, Inflation and capital formation: An Analysis of the Nigeria Experience, 1959 -1970, Ibadan, The Nigeria Journal of Economic and Social Sciences 14:22-43.

23. Sowa, N.K. (1994), “Fiscal Deficits, Output Growth and Inflation Targets in Ghana”, World Development, Vol. 22, Pp. 1105-1117.