Does Fiscal Policy Spur Economic Growth in Nigeria?

Abstract

The growth rate of the Nigerian economy has barely surpassed population increase in the past decade. This study aims to assess the impact of government fiscal policies on economic growth from 1990 to 2024. Utilizing the Autoregressive Distributed Lag (ARDL) method, we analyzed secondary data gathered from the World Bank Development Indicators, National Bureau of Statistics, and the Central Bank of Nigeria's Annual Statistical Bulletin. Findings of the study indicate that government recurrent expenditure has negative impact on economic growth in both the short and long terms. In contrast, government capital expenditure and external debt were found to have positive long-term effects on economic growth. However, the estimated relationships lack statistical significance. The study concludes that the current pattern of government spending, characterized by high recurrent expenditures-averaging over 70% of total budget allocations-and substantial debt servicing costs, does not promote economic growth. Additionally, Nigeria's heavy dependence on oil revenue limits both the government's earning potential and the overall productive capacity of the economy. To address these issues, we recommend reducing recurrent spending, improving the efficiency of capital investments, and adopting a more strategic approach to managing external debt.