DEFICIT FINANCING AND IMPACT ON THE GROWTH OF NIGERIA’S ECONOMY

ABSTRACT

The study investigates the impact of deficit financing on economic growth in Nigeria, spanning the years from 1981 to 2022. Employing econometric methods, including Error Correction Technique, time series analysis, and regression modeling, this research delves into the multifaceted relationship between fiscal variables and economic growth, with a specific focus on the implications of deficit financing. The primary aim of this study is to provide a comprehensive analysis of how deficit financing influences economic growth in the Nigerian context. By examining a range of fiscal variables and their ef ects on economic growth, this research of ers empirical evidence and insights that can guide policymakers, stakeholders, and researchers in understanding the dynamics of deficit financing and its repercussions on the nation's economic development. The findings of this study reveal a nuanced relationship between deficit financing and economic growth in Nigeria. In the short term, deficit financing can stimulate economic growth through increased government spending. However, in the long run, it may lead to economic instability, underscoring the importance of fiscal discipline. The research also highlights the intricate influence of external debt and the significance of prudently managing debt service payments. The study's key recommendations emphasize the need for a balanced approach to deficit financing, considering both short-term economic stimulus and long-term fiscal sustainability. Ef ective management of external debt is crucial, with a focus on directing borrowed funds toward productive investments. In response to the dynamic fiscal landscape, businesses and investors are encouraged to adapt and employ ef ective risk mitigation strategies. This research of ers valuable insights into the complex dynamics of deficit financing and its impact on economic growth in Nigeria, using the Error Correction Technique for regression analysis. By following the recommendations outlined, stakeholders and policymakers can contribute to sustainable and balanced economic growth, fostering a prosperous future for the nation.