The Dynamic Interplay Between Fiscal Deficits and Economic Growth in Nigeria: A Time Series Analysis

This paper investigates the dynamic interplay between fiscal deficits and economic growth in Nigeria over the period 1990–2023, employing a time series regression framework with a comprehensive set of control variables. While fiscal deficits have remained a persistent feature of Nigeria's macroeconomic landscape, the empirical evidence on their growth effects remains contested, fragmented, and context-dependent. This study contributes to the literature by simultaneously incorporating GDP per capita growth rate, inflation rate, population growth rate, trade openness, institutional quality (proxied by the corruption perception index), natural resource dependence (oil revenue as a share of total revenue), human capital (life expectancy), and infrastructure development (access to electricity) as control variables. Using data sourced from the Central Bank of Nigeria Statistical Bulletin, the World Bank's World Development Indicators, and Transparency International, the study employs Ordinary Least Squares regression with robust post-estimation diagnostics including tests for serial correlation, heteroscedasticity, multicollinearity, normality of residuals, and structural stability. The results reveal that fiscal deficits exert a statistically significant negative effect on economic growth in Nigeria, contradicting the Keynesian proposition that deficit spending stimulates output expansion in developing economies. Inflation, natural resource dependence, and weak institutional quality emerge as significant growth-dampening factors, while trade openness, human capital, and infrastructure development demonstrate positive and statistically significant associations with economic growth. The findings carry profound policy implications: Nigeria's deficit financing strategy, heavily reliant on borrowing rather than productive investment, has failed to generate the multiplier effects necessary for sustained economic expansion. The paper recommends a fundamental reorientation of fiscal policy toward productive capital expenditure, institutional reform, economic diversification, and human capital investment. These findings contribute to the ongoing debate on fiscal policy effectiveness in resource-dependent developing economies and offer a nuanced, empirically grounded perspective that challenges simplistic prescriptions from either the Keynesian or Ricardian traditions.