Deficit Financing and Economic Recovery

AFRAG017

Deficit Financing and Economic Recovery

Onigah Peter Oko

Banking and Finance Student, University of Nigeria, Enugu Campus. Enugu State, Nigeria

Abstract

Economic recovery has been in focus because of the economic downturn experienced globally in the recent period due to Corona Virus. Nations are making frantic efforts to recover economically after this major global economic downturn. Nigeria is not an exception. The government, institutions and researchers are involved in this economic struggle for recovery and growth. The achievement of economic growth and stability is the duty of government in any economic system, irrespective of its political arrangement.

Mordi (2006) states that maintaining relative stability is crucial for both internal and external balance and hence, recovery or growth in any economy is critical. Economic recovery or growth is necessary to keep the values and volumes of outputs with population growth. The periodic increase in economic values and volumes of output is called Economic Growth. Over the period, Nigeria has considered economic recovery or growth as one of her economic objectives. Nigeria has implemented numerous policy initiatives and measures to achieve full economic recovery and maximum growth rate. One of those economic measures is the Deficit financing. Deficit financing is described as a situation where government planned expenditure is higher than expected revenue for a given period. Deficit financing has been employed by governments with a view to achieving economic growth among other macroeconomic objectives. However, we noticed divided opinions in related literature on the relationship between Deficit financing and Economic Recovery in Nigeria. Therefore, this paper considers how deficit financing has affected economic recovery in Nigeria. Hence, this paper is on Deficit Financing and Economic Recovery in Nigeria (1986-2019). The purpose of the study on Deficit Financing and Economic Recovery in Nigeria is to establish a relationship between Deficit and Economic Recovery in Nigeria. Ordinary least square method of regression, Error Correction Model (ECM) and the Johansen-co-integration test were used. The results show that there exists significant relationship between Deficit Financing and Economic Growth in Nigeria. Deficit Financing has impacted positively on Economic Recovery in Nigeria. Though Nigerian recovery and growth has been so slow or at low level. Efforts should be made to effectively apply Deficit Financing to engender Economic Recovery in Nigeria.

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