FISCAL FEDERALISM AND MACROECONOMIC PERFORMANCE IN NIGERIA (1970-2010)
FISCAL FEDERALISM AND MACROECONOMIC PERFORMANCE IN NIGERIA (1970-2010)
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Date
2013-04
Authors
BIJIMI, SHEHU UMARU
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Abstract
The study examined the impact of fiscal federalism on key macroeconomic indicators; GDP,
inflation and exchange rate in Nigeria between 1970 and 2010. The country having experienced
fiscal federalism for over 50 years is still beset with problems of poor output growth, high
inflation rate, and balance of payment deficit, among others. There is controversy in the literature
on the impact of fiscal federalism on macroeconomic performance. The objectives of the study
are to analyze the trend of fiscal federalism in Nigeria over the years; to measure and analyze the
impact of fiscal federalism on real GDP, inflation, exchange rate, and to examine whether there
is a long relationship between fiscal federalism and the above mentioned macroeconomic
variables. A Vector Autoregressive (VAR) model was estimated using the Nigerian annual time
series data from 1970 to 2010. Results from the VAR estimate revealed that the ratio of state
governments’ expenditure to total government expenditure (FDC2), and the ratio of state
governments’ revenue from the federation account to total government revenue (FDC3) have a
positive impact on economic growth, while the ratio of state governments’ internally generated
revenue to total government revenue (FDC1) has a negative impact on economic growth; FDC1
and FDC2 have a positive impact on inflation, while FDC3 has a negative impact on inflation;
FDC1 and FDC2 have a positive impact on exchange rate, while FDC3 has a negative impact on
exchange rate over the period of study; the Nigerian federalism is more of fiscal fragmentation
rather than fiscal decentralization. It is concluded that fiscal federalism has a mixed (positive and
negative) impact on real GDP, inflation, and exchange rate in Nigeria over the period of study.
This implies that the impact of fiscal decentralization is not in all cases good on the economy,
because it could result to economic growth that is accompanied with inflation and naira
devaluation. Based on these, the study recommended that more fiscal powers should be devolve
to the lower tiers of government taking into consideration the trade-offs of fiscal decentralization
on real GDP, inflation, and exchange rate.
Description
A Thesis submitted to the School of Postgraduate Studies, Ahmadu Bello University, Zaria
In partial fulfillment of the requirements for the Award of
Masters Degree in Economics.
Department of Economics, Faculty of Social Sciences
Ahmadu Bello University, Zaria, Nigeria.
April, 2013
Keywords
FISCAL,, FEDERALISM,, MACROECONOMIC,, PERFORMANCE,, NIGERIA