Effect of Government Fiscal Deficit and Domestic Investment

Filed in Economics Project Topic by on October 19, 2020

Effect of Government Fiscal Deficit and Domestic Investment

ABSTRACT

This study has attempted to investigate the relationship between fiscal deficit and private domestic investment using Nigerian data from 1981 – 2014.

The study employed OLS technique to estimate the relationship and the Engel and Granger two step methods to establish the long run dynamics.

It was discovered that private domestic investment is positive and statistically significant in explaining government fiscal deficit and there exist a long run relationship between both variables.

It was thus recommended that Government should encourage domestic investors through giving incentives like lower interest rate in order to boost investment as this will lead to improvement in the fiscal deficit position in Nigeria.

INTRODUCTION

According to Faith and Yunus (1990, as cited in Sayan and Abiola, 2015) the term of fiscal deficit can be defined as the difference between budget revenue and budget expenditure.

Budget revenue includes three important components which are tax revenue, tax-exempt revenues and private revenues.

Budget deficit is an economic technique of overcoming depression; it represents the government’s expenditures which exceed the revenue generated (Awe and Folanyo, 2014).

Fiscal deficit arise because public spending rises while revenue remains unchanged, or tax revenue falls while public spending remains unchanged, or tax revenue falls while public spending rises (Onwioduokit, 1994, as cited in Sayan and Abiola, 2015).

Deficit financing seems to present a negative impact on investment in developing economies especially Nigeria.

When there is a budget deficit, government finds ways of financing the deficit through borrowing from commercial banks or from non-banking public and through the issue of short term bonds and monetary instrument.

REFERENCE

Abou-Strait, D. (2005): Are Export the Engine of Economic Growth? A Application Of and Causality

Analysis for Egypt, 1997-2003, African Development Bank, Economic Resources Working Paper No76, July.

Abebefe, G. (1995): “The structure of Nigeria’s external trade” A Focus on Export Carbaugh, R. (2004) International Economics (10 ed.). Ohio: Thompson.

Central Bank of Nigeria and Nigeria Export and Import Bank (1999). A diagnostic Study of the Nigerian Non-Oil export sector: Findings and Recommendations.

Dunn, R. M., &Mutti, J. H. (2004).Trade and growth.InInternational Economics (6th ed., pp. 2012). London: Routledge.

Iyoha, D., and Oriahki, S. (2002). Explaining African Economic Growth Performance “The Case of Nigeria” A Revised Interim Report on Nigeria Case Study for The African Economic Research  Consartium Research, May.

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