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Oil Price Transmission, Deficit Financing and Capital Formation

Author

Listed:
  • Ebi, Bassey Okon

    (Department of Economics University of Calabar P.M.B 1115, Calabar, Cross State NIGERIA.)

  • Aladejare, Samson Adeniyi

    (Department of Economics Federal University Wukari PMB 1020 Katsina-Ala Road, Wukari, Taraba State NIGERIA.)

Abstract

This study investigated the magnitude of the transmission effect from oil price, to deficit financing, and capital formation using the Generalised Method of Moment approach. Based on the Nigerian data, the findings reveals a significant but small inverse oil price transmission effect, through the oil revenue channel to deficit financing. This indicates that growth in public spending is currently pacing faster than government revenue, due to poor fiscal management. In contrast, the transmission effect from oil price, through the oil revenue and deficit financing channels, to capital formation is significantly positive but minute in magnitude. The weak response of capital formation to the transmission effect from oil price, is due to the increasing use of oil proceeds in funding government’s recurrent outlays over the years. Hence, channelling positive growth in oil prices, and repositioning the use of deficit financing to growing capital formation as against consumption demands, will increase diversification of government revenue base and investors’ confidence in the economy through growth in FDI inflows.

Suggested Citation

  • Ebi, Bassey Okon & Aladejare, Samson Adeniyi, 2022. "Oil Price Transmission, Deficit Financing and Capital Formation," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 56(1), pages 123-133.
    • Handle: RePEc:ukm:jlekon:v:56:y:2022:i:1:p:123-133
    DOI: http://dx.doi.org/10.17576/JEM-2022-5601-09
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital formation; Nigeria.; Oil price; deficit financing; transmission;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance

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