Deficit Financing and Trade Balance in Nigeria

Using a time series data the study employed Granger-Causality and Vector Auto-Regression (VAR) techniques in the analysis of the data collected. This study assessed the effects of deficit financing on trade balance in Nigeria from 1980 - 2008. Our short-run dynamic result indicates a positive relationship between Deficit financing and Trade balance (surplus). While the long-term result posits that an increase in deficit financing diminishes trade deficit in Nigeria. The implication of the above result is that deficit financing is an available instrument for government to improve trade in the shortrun and that in the long-run deficit financing could be used to reduce trade deficit in Nigeria if properly managed by government.