FISCAL DEFICIT AND INVESTMENT IN NIGERIA

Nurudeen Olanipekun Kasali

Post Graduate Student, Department of Economics, University of Ilorin, Nigeria.

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Abstract

Investment has been identified as a major factor in the economic growth and development, and by extension, contributes to high rate of employment, productivity, capital formation, and improved technology and poverty reduction. This study generally investigates the effect of fiscal deficit on investment in Nigeria, and specifically, determines the effect of fiscal deficit on private domestic investment, foreign direct investment and the causal relationship between private domestic investment and public investment in Nigeria for a period of 1980-2015. The study adopts neoclassical theory of investment of Dale Jorgenson’s approach, using macroeconomic data. It employs Dickey Fuller Generalized Least Square (DFGLS) and Autoregressive Distributed Lag Bounds testing approach of cointegration as estimation techniques. The results obtain indicate that fiscal deficit has a negative effect on private domestic investment in the short-run and a positive effect on foreign direct investment in the long run. Public investment and private domestic investment are autonomous in Nigeria. Following the findings, the study recommends that more emphasis of governments’ expenditure should be on infrastructures that help on capital formation which will inturn increase private domestic investment, instead of reccurent expenditures that have no effect on private domestic investment.

Key Words: Fiscal Deficit, Investment, Nigeria.

FISCAL DEFICIT AND INVESTMENT IN NIGERIA