Fiscal Imbalance and Macroeconomic Instability in Nigeria: Implications for National Development
This paper sought to investigate the influence of fiscal imbalance on inflation and economic growth in Nigeria for the period
1981 to 2019. In this paper, we utilized the ordinary least squares (OLS) approach in achieving the set objective. The
correlation analysis was also utilized to ascertain the nature of the relationship between fiscal imbalance and inflation and
economic growth. The correlation analysis revealed that fiscal imbalance has a positive relationship with economic growth,
but a negative relationship with inflation. From the regression analysis, it was discovered that fiscal imbalance has a positive
and significant effect on economic growth. However, the effect of fiscal imbalance on inflation was negative and statistically
significant. Though fiscal imbalance may propel economic growth, it tends to accelerate inflation in the Nigerian economy
over the study period. The policy implication of these findings for national development is that fiscal imbalance should be
augmented with the appropriate discretionary monetary policy to achieve economic growth and price stability
Ascertaining a feasible threshold. International Journal of Economics and Financial Issues,
Ahking, F. & Miller, S. (1985). The relationship between government deficits, money growth
and inflation. Journal of Macroeconomics, 7(4), 447 – 467.
Ahmad, N. (2013). The Role of Budget Deficit in the Economic Growth of Pakistan. Global
Journal of Management and Business Research Economics and Commerce, 13(5), 1-4.
Anayochukwu, O. B. (2012), Fiscal deficits and inflation in Nigeria: The causality approach.
International Journal of Scientific and Technology Research, 1(8), 6 – 12.
Augustt, R. M., Adu, G., & Frimpong, P. B. (2015). The nexus between output fluctuations
and fiscal deficits: empirical evidence on Ghana. International Journal of Sustainable
Economy, 7(2), 100-117. https://doi.org/10.1504/IJSE.2015.068676
Awe, A. A., and Shina, O. S. (2012), The nexus between budget deficit and inflation in the
Nigerian economy. Research Journal of Finance and Accounting, 3(10), 78 – 92.
Barnhart, S. W. & Darrat, A. F. (1988). Budget deficit, money growth and causality: Further
OECD evidence. Journal of International Money and Finance, 7(2), 231 – 242.
Biza, R. A., Kapingura, F. M., & Tsegaye, A. (2015). Do budget deficits crowd out private
investment? An analysis of the South African economy. International Journal of Economic
Policy in Emerging Economies, 8(1), 52-76. https://doi.org/10.1504/IJEPEE.2015.068248
Blanchard, O. and Fischer, S. (1989). Lectures on macroeconomics. Cambridge,
Massachusetts: MIT Press.
Boariu, A. and Bilan, I. (2007). Inflationary effects of budget deficit financing in
contemporary economies. ANALELE ŞTIINŢIFICE ALE UNIVERSITĂŢII „ALEXANDRU
IOAN CUZA” DIN IAŞI Tomul LIV Ştiinţe Economice, 77 – 82.
Bose, N., Haque, M.E., Osborn, D.R. (2007), Public expenditure and economic growth: A
disaggregated analysis for developing countries. The Manchester School, 75(5), 533 – 556.
Catao, L. and Terrones, M. E. (2003). Fiscal deficits and inflation. IMF Working Paper
Calvo, G. and Vegh, C. (1999). Inflation stabilization and BOP crises in developing
countries. In J. Taylor and M. Woodford (eds.), Handbook of Macroeconomics, Volume C,
Amsterdam: North Holland.
Cebula, R. J. (1995). The impact of Federal government budget deficit on economic growth
in the United States: An empirical investigation, 1955-1992. International Review of
Economics and Finance, 4(3), 245-252. https://doi.org/10.1016/1059-0560(95)90042-X
De Haan, J. & Zelhorst, D. (1990). The impact of government deficits on money growth in
developing countries. Journal of International Money and Finance, 9, 445 – 469.
Dwyer, G. (1982). Inflation and government deficits. Economic Inquiry, 20, 315 – 329.
Ezeabasili, V. N., Mojekwu, J. N., and Herbert, W. E. (2012), An empirical analysis of fiscal
deficits and Inflation in Nigeria. International Business and Management, 4(1), 105 – 120.
Fatima, G., Ahmed, M., & Rehman, W. U. (2012). Consequential effects of budget deficit on
economic growth of Pakistan. International Journal of Business and Social Science, 3(7),
Filip, G. H. (2002). Finanţe publice, Editura Junimea, Iaşi.
Fischer, S. Sahay, R. and Vegh, C. (2002). Modern hyper – and high inflations. Journal of
Economic Literature, 40, 837 – 880.
Folorunso, B. A., and Falade, O. E. (2013), Relationship between fiscal deficit and public
debt in Nigeria: An error correction approach. Journal of Economics and Behavioural
Studies, 5(6), 346 – 355.
Friedman, M. (1963). Inflation: Causes and Consequences. New York, USA: Asia Publishing
Ghura, D. (1995). Effects of macroeconomic policies on income growth, inflation, and output
growth in Sub-Saharan Africa. Journal of Policy Modelling, 17 (4), 367-395.
Hassan, M., Nassar, R., & Liu, C. (2014). Effect of Government deficit spending on the GDP
in the United States. Journal of Economic and Economic Education Research, 15(3), 103-
Hondroyiannis, G. & Papapetrou, E. (1997). Are budget deficits inflationary? Applied
Economics Letters, 4(8), 493 – 496.
Hamburger, M. J. & Zwick, B. (1981). Deficit, money and inflation. Journal of Monetary
Kameda, K. (2014). ‘Budget deficits, government debt, and long-term interest rates in Japan.
Journal of the Japanese and International Economies, 32, 105-124.
Karras, G. (1994). Macroeconomic effects of budget deficits: further international evidence.
Journal of International Money and Finance, 13(2), 190-210. https://doi.org/10.1016/0261-
Ljungqvist, L. and Sargent, T. (2000). Recursive macroeconomic theory. Cambridge,
Massachusetts: MIT Press.
Mcmillin, W. & V. Beard, T. (1982). Deficits, money and inflation: Comment. Journal of
Monetary Economics, 10, 273 – 277.
Nayab, H. (2015). The relationship between budget deficit and economic growth of Pakistan.
Developing Country Studies, 5(11), 79 – 84.
Ogunmuyiwa, M. S. (2011). Does fiscal deficit determine the size of external debt in Nigeria.
Journal of Economics and International Finance, 3(10), 580 – 585.
Oladipo, S. O., and Akinbobola, T. O. (2011), Budget deficit and inflation in Nigeria: A
causal relationship. Journal of Emerging Trends in Economics and Management Sciences, 2,
1 – 8.
Onwioduokit, E. A., Bassey, G. E. (2013). Fiscal deficit and economic growth in Gambia.
International Journal of Current Research and Review, 5(22), 1 – 22.
Pelagidis, T., & Desli, E. (2014). Deficits, growth, and the current slowdown: what role for
fiscal policy? Journal of Post Keynesian Economics, 26(3), 461-469.
Rahman, N. H. A. (2012). The relationship between Budget deficit and Economic growth
from Malaysia’s perspective: An ARDL Approach. International Conference on Economics.
Business innovation IPEDR, 38, 54-58.
Sachs, J. & Larrain, F. (1993). Macroeconomics in the global economy. Englewood Cliffs,
NJ: Prentice Hall, Inc.
Sanya, O. and Abiola, L. N. (2015). Fiscal deficit and economic growth, Nigeria experience.
International Journal for Innovation Education and Research, 3(11), 6 – 15.
Solomon, M. and de Wet, W. A. (2004). The effect of a budget deficit on inflation: The case
of Tanzania. SAJEMS NS, 7(1), 100 – 116.
Tung, L. T. (2018). The effect of fiscal deficit on economic growth in an emerging economy:
Evidence from Vietnam. Journal of International Studies, 11(3), 191-203.
Van, V. B., & Sudhipongpracha, T. (2015). Exploring Government budget deficit and
Economic growth: Evidence from Vietnam’s economic miracle. Asian Affairs: An American
Review, 42, 127-148. doi. https://doi.org/10.1080/00927678.2015.1048629
Velnampy, T., & Achchuthan, S. (2013). Fiscal deficit and Economic growth: A study in Sri
Lankan economic perspective. Developing Country Studies, 3(3), 166-174.
Walsh E., (1998). Monetary theory and policy. Cambridge, Massachusetts, London, England:
Copyright (c) 2021 Ubong Effiong, Supper Okijie
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.