Fiscal Discipline, Financial Development & Economic Growth in Nigeria

Evans, Olaniyi (2020): Fiscal Discipline, Financial Development & Economic Growth in Nigeria. Published in: Dynamics of Fiscal and Monetary Policies in ECOWAS Countries, C. I. Nwaogwugwu (Ed.), University of Lagos Press (2020)

Abstract

Fiscal discipline is very vital to the development and growth of all the countries of the world. The literature, nonetheless, stresses that developing nations such as Nigeria are mostly prone to challenges emanating from fiscal indiscipline. The current study therefore empirically investigates the effects of fiscal discipline in the form of policy uncertainty, corruption, budgeting reforms, fiscal policy sustainability and crowding-out on financial development and economic growth using the ARDL bounds testing approach for the case of Nigeria in the 1980-2017 period. The study shows that policy uncertainty, corruption and fiscal deficits have significant negative relationship with financial development and economic growth both in the short and long-run. Higher levels of uncertainty, corruption and fiscal deficits will lead to reduced levels of financial development and economic growth. In other words, fiscal policy crowds out financial development. Also, debts have significant negative relationship with financial development and economic growth in the long run, meaning that non-sustainable fiscal policy have damaging effects on financial development and economic growth in the long run. However, budget reforms have significant positive relationship with financial development and economic growth in the long run. Further, financial development has significant positive relationship with economic growth in the short- and the long-run, meaning that financial development in itself is important for economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal discipline; non-sustainable fiscal policy; financial development; policy uncertainty; corruption; budgeting reforms; crowding-out effects; economic growth
• Subjects: G - Financial Economics > G0 - General; G - Financial Economics > G2 - Financial Institutions and Services; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General

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