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Fiscal deficit and inflation rate in selected African Regional Blocs: A comparative analysis

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  • Ebenezer A. OLUBIYI

    (Department of Economics, Federal University of Agriculture Abeokuta, Nigeria.)

  • Michael A. BOLARINWA

    (Department of Economics, Covenant University, Sango Otta, Ogun State Nigeria.)

Abstract

This study investigates the effect of fiscal deficit on inflation rate in selected African countries. The data collected spans 22years from 1994 to 2015. The countries considered are Egypt, Kenya, Mali, Nigeria, and South Africa. The selection of these countries was based on the countries with highest fiscal deficit or inflation rate in each of the geo-political zones in Africa. Based on the nature of the data, an autoregressive distributed lag (ARDL) in the context of Keynesian model of aggregate expenditure was specified and estimated. The result shows that inflation effect of fiscal deficit is country specific and period specific. Out of the five countries considered, it is only in Nigeria and South Africa that inflation is affected positively by fiscal deficit in the short run. In the long run, Nigeria is the only country where inflation rate is affected positively by fiscal deficit. In Egypt, there was no short run effect of fiscal deficit while in Kenya, there was negative effect. Recommendations were proffered based on these results.

Suggested Citation

  • Ebenezer A. OLUBIYI & Michael A. BOLARINWA, 2018. "Fiscal deficit and inflation rate in selected African Regional Blocs: A comparative analysis," Turkish Economic Review, KSP Journals, vol. 5(1), pages 89-101, March.
    • Handle: RePEc:ksp:journ2:v:5:y:2018:i:1:p:89-101
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    References listed on IDEAS

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    1. Jamaleddin Mohseni Zonuzi & Mahnaz S.Hashemi Pourvaladi & Nasrin Faraji, 2011. "The Relationship between Budget Deficit and Inflation in Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 16(1), pages 117-133, winter.
    2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    3. Albert Makochekanwa, 2011. "Impact of Budget Deficit on Inflation in Zimbabwe," Economic Research Guardian, Mutascu Publishing, vol. 1(2), pages 49-59, December.
    4. Oseni Isiaq Olasunkanmi & Sanni Hauwa Yetunde, 2016. "Does Fiscal Deficit Granger Cause Impulsiveness in Inflation Rate in Nigeria?," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 12(4), pages 208-216, October.
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    Cited by:

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    2. Olusola Joel Oyeleke, 2021. "On the Non-Linear Relationship between Fiscal Deficit and Inflation: The Nigeria Experience," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 27(2), pages 105-117, May.
    3. Habil O. Onyango & Scholastica A. Odhiambo & Evans O. Kiganda, 2021. "Impact of Development Budget Deficit on Gross County Product of Counties in Kenya," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 8(2), pages 98-104, February.
    4. Habil O. Onyango & Evans O. Kiganda & Scholastica A. Odhiambo, 2021. "Effect of Local Revenue Deficit on Gross County Product of Devolved Governments in Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(2), pages 507-511, February.
    5. Clement Olalekan Olaniyi, 2020. "Application of Bootstrap Simulation and Asymmetric Causal Approach to Fiscal Deficit-Inflation Nexus," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(2), pages 123-140, May.

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    More about this item

    Keywords

    Inflation; Fiscal deficit; Autoregressive distributed lag.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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