ABSTRACT: Regardless of the vast amount of debt Nigerian government accommodate
annually, the projected level of development is not been realized as sizeable
percentage of her citizens still lives in miserable poverty, low standard of
living and soaring level of unemployment and so on. Consequently, one starts to
question why the theoretical proposition seems not to be working in the
Nigerian perspective. It is based on these commotions that this research work
seeks to scrutinize the effect of deficit financing on recovery and development
of the Nigerian economy between the periods 1981 to 2015 employing error
correction model and granger causality test. Study exposes that Federal
Government external debt displays a significant P-value of 0.0173 with a
positive coefficient of 0.000031 signifying that 1% increase in government
external debt is capable of intensifying economic recovery and development in
Nigeria to the tune of 0.00003. The details of the causality test also
corroborate the report in the error correction model and thus advocate that
external debt extensively adds to the development of the Nigeria economy while
domestic debt and deficit budget does not give the impression to granger cause
economic development in Nigeria. On this basis, study affirms that deficit
financing is a crucial incentive in advancing economic development in Nigeria
if effectively disbursed for the primary rationale for which it was meant for.
Additionally, study thus authenticates the Keynesian theory of the existence of
positive relationship between deficit financing and economic recovery. On this
note, study recommends that executives of the Nigerian economy should harmonize
the appropriation of borrowed fund and make certain that it is well utilized
towards improving the capital and production dominance of the nation as this
will further boost the realization of
accomplishing a sustainable level of economic development in Nigeria.Keywords: Economic Recovery, Deficit
Financing, Granger Causality
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