Evaluating Government Consumption Expenditure Effect on Current Account in Nigeria
Keywords:
Government consumption; Current account; Bound cointegration; ARDL; NigeriaAbstract
This study evaluates the interaction effect between government consumption expenditure and current account in Nigeria covering the periods from 1980 to 2019. The study answered the question, does government consumption expenditure affect the current account in Nigeria? Employing the Autoregressive Distributed Lag (ARDL) bound cointegration testing approach for evaluation, the unit root test results shows a mix order of stationarity. The ARDL bound test result show that there exists a long run relationship among the variables. The estimated coefficients of the long-run relationship are positive and statistically significant for the consumption expenditure, LOG (GCON), and the growth rate of GDP (GDPGR) at 5% significant level. This show that increased in the government consumption expenditure results to a decrease in the current account balance of Nigeria. The coefficient of budget deficit, DEFICIT shows a positive sign, indicating that government budget deficit leads to a current account deficit, thus supporting the twin deficit proposition. The study therefore recommend that the Federal Government of Nigeria should reduce the level of borrowing as this would reduce debt service payment.
References
Abbas, s. et al. (2011). Fiscal policy and the current account , Washington: IMF working paper No.WP/10/121.
Ahmed, S.(1987). Government spending,the balance of trade and the terms of trade in British history. Journal of Monetary Economics , Volume 20, pp. 195-220.
Alesina, A., Glaeser, E. & Sacerdote, B.(2001). Why Doesn't the US Have a European -Style Welfare System?, Cambridge : NBER.
Bank, T.W.(2019). General government final consumption expenditure. [Online]
Available at: https://data.worldbank.org/indicator/NE.CON.GOVLCD
Bartoli, G.(1989). Fiscal Expansion and External Current Account Imbalances. In: M. I. Blejer & K. Chu, eds. Fiscal policy, Stabilisation and Growth in Developing Countries . Washington : International Monetary Fund .
Baxter, M. & King Rich, G.(1993). Fiscal Policy in General Equilibrium. American Economic Review, 83(3), pp. 315-334.
Bhavesh, G. & Prabbeesh, K. (2017). Drivers of India's current account deficits, with implication for ameliorating them. Journal of Asian Economics.
Brennam, G. & Pincus, J. (1996). A minimalist model of federal granmts and flypaper effects. Journal of Public Economics, 61(2), pp. 229-246.
Briotti, G. (2005). Economic Reactions to Public Finance Consolidation: A Survey of the Literature. ECB Occasional Paper No. 38.
Cavallo, M. (2005). Government Consumption Expenditures and the Current Account, San Francisco: Federal Reserve Bank of San Francisco Working paper No.2005-03.
Corsetti, G., Meier, A. and Müller, G.J. (2006), Fiscal stimulus with spending reversals, Review of Economics and Statistics 94, 878-895.
De Mello, L.(1999). Fiscal Federalism and Government Size in Transition Economies, Washington: IMF.
Ekundayo, B. I. (2011). Fiscal policy and dynamics of current accouint in Sub-Saharan Africa. A Ph.D proposal presented at the African Economic Research Consortium (AERC) Binnual Wrokshop. Nairobi, Kenya, AERC.
Enders, Z., Müller, G.J. & Scholl, A. (2011). How do fiscal and technology shocks affect real exchange rates? New evidence for the United States, Journal of International Economics 83, pp. 53-69.
Heera, G. (2014). Why does a current account leads to a rise in interest rate? Econ-friendly. [Online] Available at: https://www.quora.com/profile/Gurmeet-Heera-1
Isik, N. S. & Kilinc, E. C. (2017). The Relationship between Current Account Balance and Types of Credits: An Application on selelcted OECD Counries. Journal of the Faculty of Economics, 7(2), pp. 105-126.
Khan, M. A., Jaffri, A. A. & Abbas, F. (2017). Does Trade Libralisation Improve Trade Balancein Pakistan?. South Asia Economic Journal, p. Available online at: https://journals.sagepub.com/home/sae.
Kim, S. & Roubini, N. (2003). Twin deficits or twin divergence? Fiscal policy, current account, and real exchange rate in the US‘, NYU Stern mimeo.
Klemm, A. & Iakova, D. (2013). Growth followinginvestment and consumption-Driven current account crises, Washington: IMF Working Paper WP/13/217.
Mundell, R. A. (1968). International Economics. New York: Macmillan.
Narayan, N. P. & Narayan, S.(2006). Savings behaviour in Fiji:An empirical assessment ujsing ARDL approach to cointegratioin. International journal of Social Economics, 33(7), pp. 468-480.
Nickel, C. & Vansteenkiste, I.(2008). Fiscal policies, the current account and Ricardian Equivalence, s.l.: European Central Bank Working Paper No.935/September.
Nurudeen, A. & Usman, A. (2010). Government Expenditure and Economic Growth in Nigeria 1970 -2008: A Disaggregated Analysis. Business and Economics journal, 4(1).
Onafowora, A. O & Owoye, O. (2006). An Empirical Investigation of Budget and Trade Deficits: The Case of Nigeria. The Journal of Developing Areas 39 (2), Spring
Oseni, I. & Onukoya, A. B., 2013. Empirical Analyisis of Fiscal Policy Shocks and Current Account Dynamics in Nigeria. African research review , 7(1).
Oteng-Abayie, E. & Frimpong, J. (2006). Bounds Testing Approach to Cointegration:An Examination of Foreign Direct Investment,Trade and Growth nrelationships. American journal of Applied Sciences, 3(11), pp. 2079-2085.
Perasan, M. H., Shin, Y. & Smith, R. J.(2001). Bound testing approaches to the analysis of levelrelationships. Journal of Applied Econometrics, 16(3), pp. 289-326.
Pettinger,T.(2017).Exchange rate and Cuurent account. [Online]
Available at: https://www.economichelp.org/blog/2089/economics/exchange-rate-and-cuurent-account/
Pevicin, P. (2004). Determinants of the size of governement and their implications for public sector reform in Slovenia. A Doctoral Dissertation. Ljubljana, Faculty of Economics, Ljubljana.
Posner, R..(1971). Regulation as Taxation. The Bell Journal, 2(1), pp. 22-50.
Proshare report (2020). The Virus Impact on the Current Account.available online at: https://www.proshareng.com/news/NIGERIA%20ECONOMY/The-Virus-Impact-on-the-Current-Account/53647
Ramanan,V.(2017). Public Debt and Current Account Deficits. [Online]
Available at: https://www.concertedaction.com/201`7/07/01`/public-debt-andcurrent-account-deficits/
Ravn, M. O., Schmitt-Grohe, S., & Uribe, M. (2012). Consumption, government spending, and the real exchange rate, Journal of Monetary Economics, 59, (3), 215-234
Sanni, G. K., Musa, A. U. & Sani, Z. (2019). Current Account Balance and Economic Growth in Nigeria: An Empirical Investigation. Central Bank of Nigeria Economic and Financial Review Vol.57 No.2
Spiro, P. S. (1997). The effect of the current account balance on interest rate. Munich: University of Munich, Germany.
Tarawalie, A. B.(2014). Fiscal Deficits and Current Account Imbalances: Evidence from Sierra Leone. International Journal of Business and Social Science Vol. 5, No. 8(1)
Yi, Y. (1993). The Determinants of Consumer Satisfaction :The moderating role of Ambiguity. In: M. Leigh, L. Michael & U. T. Provo, eds. Advances in consumer researh Volum 20. pp. 502-506. Association of consumer Research
Ahmed, S.(1987). Government spending,the balance of trade and the terms of trade in British history. Journal of Monetary Economics , Volume 20, pp. 195-220.
Alesina, A., Glaeser, E. & Sacerdote, B.(2001). Why Doesn't the US Have a European -Style Welfare System?, Cambridge : NBER.
Bank, T.W.(2019). General government final consumption expenditure. [Online]
Available at: https://data.worldbank.org/indicator/NE.CON.GOVLCD
Bartoli, G.(1989). Fiscal Expansion and External Current Account Imbalances. In: M. I. Blejer & K. Chu, eds. Fiscal policy, Stabilisation and Growth in Developing Countries . Washington : International Monetary Fund .
Baxter, M. & King Rich, G.(1993). Fiscal Policy in General Equilibrium. American Economic Review, 83(3), pp. 315-334.
Bhavesh, G. & Prabbeesh, K. (2017). Drivers of India's current account deficits, with implication for ameliorating them. Journal of Asian Economics.
Brennam, G. & Pincus, J. (1996). A minimalist model of federal granmts and flypaper effects. Journal of Public Economics, 61(2), pp. 229-246.
Briotti, G. (2005). Economic Reactions to Public Finance Consolidation: A Survey of the Literature. ECB Occasional Paper No. 38.
Cavallo, M. (2005). Government Consumption Expenditures and the Current Account, San Francisco: Federal Reserve Bank of San Francisco Working paper No.2005-03.
Corsetti, G., Meier, A. and Müller, G.J. (2006), Fiscal stimulus with spending reversals, Review of Economics and Statistics 94, 878-895.
De Mello, L.(1999). Fiscal Federalism and Government Size in Transition Economies, Washington: IMF.
Ekundayo, B. I. (2011). Fiscal policy and dynamics of current accouint in Sub-Saharan Africa. A Ph.D proposal presented at the African Economic Research Consortium (AERC) Binnual Wrokshop. Nairobi, Kenya, AERC.
Enders, Z., Müller, G.J. & Scholl, A. (2011). How do fiscal and technology shocks affect real exchange rates? New evidence for the United States, Journal of International Economics 83, pp. 53-69.
Heera, G. (2014). Why does a current account leads to a rise in interest rate? Econ-friendly. [Online] Available at: https://www.quora.com/profile/Gurmeet-Heera-1
Isik, N. S. & Kilinc, E. C. (2017). The Relationship between Current Account Balance and Types of Credits: An Application on selelcted OECD Counries. Journal of the Faculty of Economics, 7(2), pp. 105-126.
Khan, M. A., Jaffri, A. A. & Abbas, F. (2017). Does Trade Libralisation Improve Trade Balancein Pakistan?. South Asia Economic Journal, p. Available online at: https://journals.sagepub.com/home/sae.
Kim, S. & Roubini, N. (2003). Twin deficits or twin divergence? Fiscal policy, current account, and real exchange rate in the US‘, NYU Stern mimeo.
Klemm, A. & Iakova, D. (2013). Growth followinginvestment and consumption-Driven current account crises, Washington: IMF Working Paper WP/13/217.
Mundell, R. A. (1968). International Economics. New York: Macmillan.
Narayan, N. P. & Narayan, S.(2006). Savings behaviour in Fiji:An empirical assessment ujsing ARDL approach to cointegratioin. International journal of Social Economics, 33(7), pp. 468-480.
Nickel, C. & Vansteenkiste, I.(2008). Fiscal policies, the current account and Ricardian Equivalence, s.l.: European Central Bank Working Paper No.935/September.
Nurudeen, A. & Usman, A. (2010). Government Expenditure and Economic Growth in Nigeria 1970 -2008: A Disaggregated Analysis. Business and Economics journal, 4(1).
Onafowora, A. O & Owoye, O. (2006). An Empirical Investigation of Budget and Trade Deficits: The Case of Nigeria. The Journal of Developing Areas 39 (2), Spring
Oseni, I. & Onukoya, A. B., 2013. Empirical Analyisis of Fiscal Policy Shocks and Current Account Dynamics in Nigeria. African research review , 7(1).
Oteng-Abayie, E. & Frimpong, J. (2006). Bounds Testing Approach to Cointegration:An Examination of Foreign Direct Investment,Trade and Growth nrelationships. American journal of Applied Sciences, 3(11), pp. 2079-2085.
Perasan, M. H., Shin, Y. & Smith, R. J.(2001). Bound testing approaches to the analysis of levelrelationships. Journal of Applied Econometrics, 16(3), pp. 289-326.
Pettinger,T.(2017).Exchange rate and Cuurent account. [Online]
Available at: https://www.economichelp.org/blog/2089/economics/exchange-rate-and-cuurent-account/
Pevicin, P. (2004). Determinants of the size of governement and their implications for public sector reform in Slovenia. A Doctoral Dissertation. Ljubljana, Faculty of Economics, Ljubljana.
Posner, R..(1971). Regulation as Taxation. The Bell Journal, 2(1), pp. 22-50.
Proshare report (2020). The Virus Impact on the Current Account.available online at: https://www.proshareng.com/news/NIGERIA%20ECONOMY/The-Virus-Impact-on-the-Current-Account/53647
Ramanan,V.(2017). Public Debt and Current Account Deficits. [Online]
Available at: https://www.concertedaction.com/201`7/07/01`/public-debt-andcurrent-account-deficits/
Ravn, M. O., Schmitt-Grohe, S., & Uribe, M. (2012). Consumption, government spending, and the real exchange rate, Journal of Monetary Economics, 59, (3), 215-234
Sanni, G. K., Musa, A. U. & Sani, Z. (2019). Current Account Balance and Economic Growth in Nigeria: An Empirical Investigation. Central Bank of Nigeria Economic and Financial Review Vol.57 No.2
Spiro, P. S. (1997). The effect of the current account balance on interest rate. Munich: University of Munich, Germany.
Tarawalie, A. B.(2014). Fiscal Deficits and Current Account Imbalances: Evidence from Sierra Leone. International Journal of Business and Social Science Vol. 5, No. 8(1)
Yi, Y. (1993). The Determinants of Consumer Satisfaction :The moderating role of Ambiguity. In: M. Leigh, L. Michael & U. T. Provo, eds. Advances in consumer researh Volum 20. pp. 502-506. Association of consumer Research
Published
2021-08-11
How to Cite
Ugwu, E., Nwosa, . P., & Ehinomen, C. (2021). Evaluating Government Consumption Expenditure Effect on Current Account in Nigeria: Array. The Journal of Accounting and Management, 11(2). Retrieved from https://dj.univ-danubius.ro/index.php/JAM/article/view/1307
Issue
Section
Articles
License
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
