THE DYNAMIC INTERPLAY BETWEEN FISCAL DEFICITS AND ECONOMIC DEVELOPMENT IN NIGERIA USING AUTOREGRESSIVE DISTRIBUTED LAG MODEL

Abstract

This study examined the dynamic interplay between fiscal deficits and economic development in Nigeria using the Autoregressive Distributed Lag (ARDL) model. Annual time-series data spanning 1990–2023 were obtained from the Central Bank of Nigeria Statistical Bulletin, World Development Indicators, and Transparency International. Economic development was proxied by GDP growth, while fiscal deficit, GDP per capita growth, human capital development, inflation, infrastructure, institutional quality, natural resource dependence, population growth, and trade openness served as explanatory variables. The Augmented Dickey-Fuller (ADF) unit root test confirmed a mixture of I(0) and I(1) variables, justifying the use of the ARDL framework. The ARDL Bounds Test established the existence of a long-run relationship among the variables. Empirical results revealed that fiscal deficits exerted a negative but statistically insignificant effect on economic development. GDP per capita growth and population growth positively influenced economic development, while inflation and natural resource dependence adversely affected development outcomes. The error correction mechanism confirmed rapid convergence to long-run equilibrium. Diagnostic tests showed that the estimated model was stable, normally distributed, free from serial correlation, and homoscedastic. The study concludes that fiscal deficits do not automatically translate into economic development and recommends prudent fiscal management, productive public expenditure, revenue diversification, and stronger institutional frameworks.