ABSTRACT

This study examined the influence of government budget deficit on economic performance in Nigeria. The study captures government budget deficit with budget deficit ratio (Bdr) and economic performance with real domestic product (RGDP). Budget deficit ratio measures the ratio of Nigeria’s national debt to its gross domestic product while real GDP measures the value of economic output adjusted for price changes. To estimates the influence of government budget deficit on economic performance, the study employed simple Keynesian model which was modified to capture variables of interest using annual data that span the periods 1970 to 2013. The study further investigates if there is any causal relation and significant correlation between government’s budget deficit and economic performance. From the investigations on the influence of government budget deficit on economic performance in Nigeria, we observed that government budget deficit (Bdr) has significant and positive impact on economic performance (RGDP), indicating that increase government deficit financing result to increase in economic performance instead of a fall in output, which may have resulted from crowding-out investment. Furthermore, the results on the causality test reveal a unidirectional causality running from government budget deficit to economic performance, which implies that government deficit financing granger causes Nigerian economic performance. In like manner, further investigation also show a positive and significant correlation between government budget deficit and economic performance in Nigeria. Hence, from the findings, deficit financing is not a bad policy option. If appropriately adopted, it will boast the economic activities and output growth and as well create more job opportunities. With these findings, the study supports the postulate of Keynesian theory of budget deficit which contradicts Ricardian understanding of budget deficit.