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Budget Deficits, External Debt And Economic Growth In Nigeria

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  • TOKUNBO SIMBOWALE OSINUBI

    (Department of Economics, Faculty of Social Sciences, University of Lagos, Akoka, Yaba, Lagos, Nigeria)

  • RISIKAT OLADOYIN S. DAUDA

    (Department of Economics, Faculty of Social Sciences, University of Lagos, Akoka, Yaba, Lagos, Nigeria)

  • OLADELE EMMANUEL OLALERU

    (Department of Economics, Faculty of Social Sciences, University of Lagos, Akoka, Yaba, Lagos, Nigeria)

Abstract

The necessity for governments to borrow in order to finance deficit budgets has led to the development of external debt. This study examines how the use of budget deficits as an instrument of stabilization leads to the accumulation of external debt with the attending effects on growth in Nigeria between 1970 and 2003. By synthesizing a relationship between budget deficits and external debt the study shows the implications on economic growth of conducting a fiscal policy within the contexts of debt stabilization and debt sustainability. The results of the econometric analysis confirm the existence of the debt Laffer curve and the nonlinear effects of external debt on growth in Nigeria. The study concludes that if debt-financed budget deficits are operated in order to stabilize the debt ratio at the optimum sustainable level debt overhang problems would be avoided and the benefits of external borrowing would be maximized.

Suggested Citation

  • Tokunbo Simbowale Osinubi & Risikat Oladoyin S. Dauda & Oladele Emmanuel Olaleru, 2010. "Budget Deficits, External Debt And Economic Growth In Nigeria," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 55(03), pages 491-521.
    • Handle: RePEc:wsi:serxxx:v:55:y:2010:i:03:n:s0217590810003869
    DOI: 10.1142/S0217590810003869
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    References listed on IDEAS

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    1. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122, National Bureau of Economic Research, Inc.
    2. David E. Lebow, 2004. "Recent fiscal policy in selected industrial countries," BIS Working Papers 162, Bank for International Settlements.
    3. S.Ibi Ajayi, 1991. "Macroeconomic approach to external debt The case of Nigeria," Working Papers 8, African Economic Research Consortium, Research Department.
    4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Yi-Bin Chiu & Chien-Chiang Lee, 2017. "On The Impact Of Public Debt On Economic Growth: Does Country Risk Matter?," Contemporary Economic Policy, Western Economic Association International, vol. 35(4), pages 751-766, October.
    2. Murshed, Muntasir & Nijhum, Nawrin Khan, 2019. "The Fiscal and Current Account Imbalances: An Empirical analysis of the Twin Deficits Hypothesis in Bangladesh," MPRA Paper 97115, University Library of Munich, Germany.
    3. Ranjan Kumar Mohanty, 2020. "Fiscal Deficit and Economic Growth Nexus in India: A Simultaneous Error Correction Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(3), pages 683-707, September.

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    More about this item

    Keywords

    Debt overhang; debt service burden; debt sustainability; debt stabilization; external debt; optimal debt stock; economic growth; Nigeria; H61; H63; H68; O47; O55;
    All these keywords.

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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