1.1.         Background of the Study  

The growth and development of the Nigerian economy has not been stable over the years as a result, the country’s economy has witnessed so many shocks and disturbances both internally and externally over the decades. Internally, the unstable investment and consumption patterns as well as the improper implementation of public policies, changes in future expectations and the accelerator are some of the factors responsible for it (Siyan and Adebayo, 2009). Similarly, the external factors identified are wars, revolutions, population growth rates and migration, technological transfer and changes as well as the openness of the country’s economy.

The cyclical fluctuations in the country’s economic activities has led to the periodical increase in the country’s unemployment and inflation rates as well as the external sector disequilibria(Okunrounmu, 2003). In other words, fiscal policy is a major economic stabilisation weapon that involves measure taken to regulate and control the volume, cost and availability as well as direction of money in an economy to achieve some specified macroeconomic policy objective and to counteract undesirable trends in the Nigerian economy (Okunrounmu, 2003). Therefore, they cannot be left to the market forces of demand and supply as well as other instruments of stabilization such as monetary and exchange rate policies among others, are used to counteract are problems identified (Odedokun, 2008). This may include either an increase or a decrease in taxes as well as government expenditures which constitute thebedrock of fiscal policy but in reality, government policy requires a mixture of both fiscal and International Review of Social Sciences and Humanities, monetary policy instruments to stabilize an economy because none of these single instruments can cure all the problems in an economy (Ndiyo and Udah, 2003).

The Nigeria economy started experiencing recession form early 1980s that leads to a depression in the mid 1980s. This depression continued until early 1990s without recovering from it. As such, the government continually initiated policy measures that would tackle and overcome the dwindling economy. Drawing the experience of the great depression, government policy measure to curb the depression was in the form of increase government spending (Nagayasu, 2003). According to Okunroumu, (2003), the management of the Nigerian economy in order to achieve macroeconomic stability has been unproductive and negative hence one cannot say the Nigeria economy is performing. This is evidence in the adverse inflationary trend, government fiscal policies, undulating foreign exchange rates, the fall and rise of gross domestic product, unfavourable balance of payments as well as increasing unemployment rates are all symptoms of growing macroeconomic instability. As such, the Nigeria economy is unable to function well in an environment where there is low capacity utilization attributed to shortage in foreign exchange as well as the volatile and unpredictable government policies in Nigeria (Anyanwu, 2007).

In any economic system, there is always the need for government to undertake very useful measures aimed at shaping various developmental aspirations. One of such measures is fiscal/budget deficit. The relationship between fiscal deficits and macroeconomic variables (such as growth, interest rates, trade deficit, exchange rate, among others) represents one of the most widely debated topics among economists and policy makers in both developed and developing countries (Obinna, 2000). This relationship can either be negative, positive or a no positive or negative relationship. The differences on the nature of the relationship between budget deficits and these macroeconomic variables as found in economic literatures according to Egwaikhide (2002), could be explained by the methodology the country and the nature of the data used by the different researchers.

There is a sharp divergence of views on how fiscal deficit affects the economy. The conventional view, embodied in the Washington Consensus and held by the international financial institutions (IFIs), is that fiscal deficit, particularly in the context of developing countries, represents the most important policy variable affecting the rest of the economy.

According to this view, the relationship between fiscal deficit and other macroeconomic variables is set to depend on how the deficit is financed. It stipulates that money creation leads to inflation, government borrowing crowds out private investment and external debt leads to balance of payments crises (Easterly and Schmidt, 1993).

On the contrary, many economists question the validity of the view that budgets should always be balanced. James Tobin is of the view that what is really important is appropriate fiscal policy which may or may not balance the budget. He argues that there are built-in stabilizers in the fiscal system and that deficit performs a useful function in absorbing savings that would otherwise be wasted in unemployment, excess capacity or lower output. This view is shared by Saleh (2003), who maintains that even in the long- run equilibrium; zero is not a uniquely interesting figure for the budget deficit. Fiscal deficit could be seeing from many angles. It is the gap between the government’s total spending and the sum of its revenue receipts and non-debts capital receipts, (Easterly and Rebelo, 2003).It represents the total amount of borrowed funds required by the government to completely meet its expenditure. It could also be defined as the excess of total expenditure including loans net of payments over revenue receipts and non-debt capital receipts. It also indicates the total borrowing of the government, and the increment to its outstanding debt.

Despite the fact that realized revenues are often above budgeted estimates, extra budgetary expenditures have been rising so fast and result in fiscal deficit, Anyanwu (2007), and Robini(2001), shows that budget deficit in developing countries are heavily influenced by the degree of political instability as well as public finance considerations with no apparent direct effect of elections. Investigations show that Nigeria was caught in the deficit trap since early 1980s when the world oil market collapsed. Since then, there have been frantic efforts to exit the deficit trap but all to no avail instead, the mode of financing the deficit has been the major factor including rapid monetary growth, exchange rate depreciation and rising inflation.

1.2.         Statement of Problem

In spite of government efforts at devising policy measures aimed at overcoming fiscal deficit, fiscal deficit has persisted in the Nation’s economy which its adverse effect is being perceived on key macro-economic variable. In less developed nations, borrowing from international financial institutions and Central Bank to finance sizeable portion of the deficits contribute to liquidity and inflation (Egwaikhide, 2002).

This is because rather than spending the borrowed money on capital expenditure such as building roads and dams improving agricultural sector, etc which may improve standard of living of the people, and hence, their productivity which in turn, may improve the country’s economic growth, this borrowed money is spent on pension and transfer payment. This has led to situations where expenditure could not be curtailed, resources could not be raised for fear of adverse effects, and greater deficits fuelled further inflation.

The impact of fiscal deficit on the development of the Nigerian Economy depends on the financing techniques(Inflation tax or bond financed deficit). Money creation to finance deficit often leads to inflation while domestic borrowing inevitably leads to a credit squeeze through higher interest rates or through credit allocation (Easterly and Robello 2004, Sowa, 2004). It is pertinent to note that Nigeria has relied very much on inflation tax (about 70%) and the non-banking holding about15-20% in government bond, (Diamond and Ogundare, 2002). The exact quantitative impact of such mix of deficit financing can better be X-rayed by the impulse response function. Some researcher believe that fiscal deficit has a positive relationship (without put growth while others state that deficits are negatively with output growth accumulation and hence negatively with output growth (Egwaikhide 2005, Soludo 2008).

It is therefore a core research issue and this is the pivot of this study. To critically look at the impact of fiscal deficit on the development of the Nigeria Economy in Nigeria. Currently, there is no consensus on the matter. The level of economic development and the fiscal structure of Nigeria compound this problem. Besides, previous studies have advanced in characterising the implications of alternative sources and composition of deficits spending without investigating whether fiscal deficit lead to economic growth.

1.3.         Objectives of the Study

The broad objective of the study is to determine the relationship between fiscal deficit and macroeconomic performance in Nigeria. Specifically, the study will:

i. Determine the impact of fiscal deficits on macroeconomic aggregates in Nigeria.

ii. Examine whether fiscal deficit leads to economic development in Nigeria.

iii. Examine the nature of relationship between fiscal deficits and macroeconomic aggregates in Nigeria.

1.4.         Research Hypotheses

H0: There is significant relationship between fiscal deficit and inflation, government taxes in Nigeria

H0: There is no significant relationship between government deficit and government expenditure in Nigeria

H0: There is significant relationship between Fiscal deficits and unemployment, economic growth in Nigeria

1.5.         Scope of the Study

The study is on “fiscal deficit and development of Nigeria economy”. Hence, it entails the use of macroeconomic variables such as Gross Domestic product (GDP) a proxy for economic growth, government expenditure (GEXP), Inflation rate (INF), government deficit (GDEF),government taxes (GTAX), and unemployment (UNEMP) and also the long-run relationship between fiscal deficit and macro-economic variables like exchange rate, interest rate. The data on the above variables will cover the period of 1984-2014. The choice of this period is based on data availability.

1.6 Organization of the Study

This study is divided into five sections. The first section is the introduction. In section two, relevant theoretical and empirical literatures are reviewed.

Section three is the methodology. The model used is stated. The sources of the data and their description, the estimation procedure are all stated. Section four shows the presentation, analysis and interpretation of results. The fifth section is the concluding part of the work, the summary of findings and policy recommendations.

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How To Write Chapter Three Of Your Research Project (Research Methodology)

  • Methodology In Research Paper

    Chapter three of the research project or the research methodology is another significant part of the research project writing. In developing the chapter three of the research project, you state the purpose of research, research method you wish to adopt, the instruments to be used, where you will collect your data, types of data collection, and how you collected it.

    This chapter explains the different methods to be used in the research project. Here you mention the procedures and strategies you will employ in the study such as research design, study design in research, research area (area of the study), the population of the study, etc. You also tell the reader your research design methods, why you chose a particular method, method of analysis, how you planned to analyze your data.

    Your methodology should be written in a simple language such that other researchers can follow the method and arrive at the same conclusion or findings.

    You can choose a survey design when you want to survey a particular location or behavior by administering instruments such as structured questionnaires, interviews, or experimental; if you intend manipulating some variables.

    The purpose of chapter three (research methodology) is to give an experienced investigator enough information to replicate the study. Some supervisors do not understand this and require students to write what is in effect, a textbook.

    A research design is used to structure the research and to show how all of the major parts of the research project, including the sample, measures, and methods of assignment, work together to address the central research questions in the study. The chapter three should begin with a paragraph reiterating the purpose of research. It is very important that before choosing design methods try and ask yourself the following questions: Will I generate enough information that will help me to solve the research problem by adopting this method?

    Method vs Methodology

    I think the most appropriate in methods versus methodology is to think in terms of their inter-connectedness and relationship between both. You should not beging thinking so much about research methods without thinking of developing a research methodology.

    Metodologia or methodology is the consideration of your research objectives and the most effective method and approach to meet those objectives. That is to say that methodology in research paper is the first step in planning a research project work.

    Design Methodology: Methodological Approach

    Example of methodology in research paper, you are attempting to identify the influence of personality on a road accident, you may wish to look at different personality types, you may also look at accident records from the FRSC, you may also wish to look at the personality of drivers that are accident victims, once you adopt this method, you are already doing a survey, and that becomes your metodologia or methodology.

    Your methodology should aim to provide you with the information to allow you to come to some conclusions about the personalities that are susceptible to a road accident or those personality types that are likely to have a road accident.

    The following subjects may or may not be in the order required by a particular institution of higher education, but all of the subjects constitute a defensible in metodologia or methodology chapter.

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