The Short and Long-Run Implications of Budget Deficit on Economic Growth in Nigeria (1980-2011)

Abstract

This research work investigated the short and long run implications of budget deficit on economic growth in Nigeria. The sample study comprises of time-series data covering period of 1980-2011. Regression analysis is conducted to ascertain and affirm the impact of Budget Deficit on the Economic growth in Nigeria. The result from the OLS regression analysis indicated that a negative relationship exist between budget deficit and economic growth. Johansen cointegration technique was used to investigate the long run effect of budget deficit. It was found that there is a significant long-run relationship between budget deficit and economic growth in Nigeria.  The error correction model revealed that budget deficit shows a negative relationship with gross domestic product while gross capital formation (investment) shows a positive relationship with GDP. The study recommends that budget deficit should be financed appropriately to help promote economic growth in the nation.