Deficit Financing and Economic Growth : An Autoregressive Distributed Lag Approach

The influence of government deficits in the growth of a nation is of great importance. Despite the several fiscal measures introduced by the government in curbing excessive deficit, the growth of the Nigerian economy still remains at bay with citizens suffering from high level of unemployment, insecurity and poverty remain widespread both in the urban and the rural areas. With respect to the aforementioned problem, this research work evaluated the short run and long run effect of deficit financing on the economic growth of Nigeria.The study made use of secondary data sourced from the Central Bank of Nigeria Statistical Bulletin from 1986 to 2016. A test for unit root and co-integration using the Augmented Dickey – Fuller (ADF) and Bound Test were used to test for stationarity and long run relationship among variables (given as Gross Domestic Product, Budget Deficit, Money Supply and External Debt ). The Auto Regressive Distributed Lag (ARDL) was employed to examine the relationships among the variables used.The result of the Auto Regressive Distributed Lag (ARDL) revealed that all the explanatory variables (budget deficit, money supply and external debt) have positive effect on economic growth with budget deficit being insignificant. It was further revealed that the Nigerian government has been experiencing fiscal deficit in the recent years which resulted from insufficient government revenue to finance government rising expenditure