Incentive-Based Vs. Intervention-Based Fiscal Policy and Economic Growth: A Comparative Analysis of Nigeria and South Africa
Keywords:
Fiscal Policy; Economic Growth; Incentive; Intervention; FMOLSAbstract
This study compares the effectiveness of incentive-based and intervention-based fiscal policies on long-run economic growth in Nigeria and South Africa respectively, over the period 1990–2024. Employing unit root tests, Johansen cointegration, and Fully Modified Ordinary Least Squares (FMOLS) estimation, the findings reveal that Nigeria’s incentive-based fiscal policy exerts a significant negative effect on economic growth, attributable to weak institutional capacity, resource misallocation, and import-dependent trade structures. Conversely, South Africa’s interventionist fiscal policy produces a positive and statistically significant growth impact, underpinned by inflation control and trade openness. These contrasting outcomes suggest that intervention-based fiscal policy outperforms incentive-based approaches, though the success of either model is fundamentally conditioned by institutional quality and complementary macroeconomic fundamentals. The study recommends that Nigeria undertake public financial management reforms while South Africa addresses structural FDI limitations. Both nations should strengthen monetary-fiscal policy coordination and leverage the African Continental Free Trade Area (AfCFTA) for productive trade integration.
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