From Policy to Prosperity: The Fiscal Path to Nigeria Economic Growth

This paper explores the transformative role of fiscal policy in driving economic prosperity in Nigeria covering 1985 to 2022. By examining how federal government domestic debt, external debt, capital expenditure, recurrent expenditure, oil revenue and non-oil revenue as a proxy for fiscal policy correlate with gross domestic product per capita as a proxy for economic growth. Data for the study were obtained from Central Bank of Nigeria (CBN) Statistical Bulletin 2022. The Augmented Dickey Fuller (ADF) method was used to conduct a unit root test on the developed model. The variables were found to be of mixed order I(0) and I (1) according to the results of the Augmented Dickey Fuller unit root test. In order to determine whether fiscal policy and economic growth have a long-run connection, the research used the Auto-regressive Distributive Lag (ARDL) model and conducted a bound test. Results from the regression analysis showed that federal government domestic debt had a negative relationship with gross domestic product per capita in the short-run, while federal government external debt reported a negative but significant impact on gross domestic product per capita in the long-run. The Auto-regressive Distributive Lag (ARDL) bound test showed that fiscal policy and economic growth are correlated in the long run. The impact on gross domestic product per capita was positive and statistically significant for federal government recurrent spending and oil and non-oil income, while it was negligible for federal government capital expenditure. Hence, it was concluded that fiscal policy leads to economic prosperity significantly. It was therefore recommended amongst other that the federal ministry of finance should prioritize improving debt management practices to reduce the reliance on domestic debt. This includes developing strategies for refinancing existing high interest debt with lower cost options and integrating debt reduction into fiscal planning.