Fiscal Policy and Sectoral Output Performance in Nigeria

International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue I, January 2020 | ISSN 2321–2705

Fiscal Policy and Sectoral Output Performance in Nigeria

Olanipekun Emmanuel Falade

Obafemi Awolowo University, Ile-Ife, Nigeria

Abstract:- In this study, the differential effects of fiscal policy variables on the performance of the key sectors of the economy namely; Industrial, Agricultural and Service sectorswere investigated using an Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) for the period of 1970-2018. Obtained results indicated that while both domestic and foreign debts have no significant effects on the three sectors examined in the short run, it was observed that foreign debt and government consumption expenditure have incremental effects on industrial sector’s output. Similarly, it was observed that while domestic debt crowd-in agricultural and services sectors’ outputs, it has a crowd-out effect on industrial output in the long run. It is also noteworthy that while government investment expenditure has positive effect on industrial output, its effects on agricultural output is detrimental in the long run. This implies that government can neutralize the negative effects of its domestic debt on industrial sector’s output either by increasing its consumption expenditure or rely more on foreign debt. It is recommended that government should focus more on investing in infrastructure such as irrigation, access road to farm land, storage facilities, processing equipment like milling machine, etc. in other to boost productivity in the sector.

Keywords: fiscal policy, government investment expenditure, crowd-out, Autoregressive Distributed Lag (ARDL)

JEL Classification: H30, H50, H60

I. INTRODUCTION

Theoretically, three major strands regarding the relationship between fiscal policy measures and economic growth are well established in the literature, since the emergence ofthe endogenous growth models in the mid-1980s (Grier and Tullock, 1989; Barro, 1991). To the neoclassical economists, government operations are inherently bureaucratic and inefficient and therefore stifle rather than promote economic growth. They believe that, the higher the level of public expenditure (which may result in debt procurement if it exceeds public revenue), the greater the inefficiency and the lower the level of output (Blinder and Solow 1973; Buiter 1977; Gwartney, et al. 1998; Pechman, 2004; Abu and Abdullahi, 2010; Bergh and Henrekson, 2011).

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