Infrastructure and Development in Nigeria: The Financing Implications of Budget Deficits for Economic Productivity

Abstract

A consensus of opinions from the scholarly literature reiterates that the major cause for the buildup of external and domestic debt, by low-developed Developed Countries (LDCs), is the financing burden arising from public expenditure, which is associated with fiscal deficit. In Nigeria, the provision of infrastructure, such as in the area of transportation via road construction, airways and waterways, via the financing of budget deficits, however, has implications for productivity. This study focuses on the concept of deficit financing in Nigeria and empirically investigates its impact on economic development and productivity, using selected macroeconomic variables as proxies. Following a quasi-experimental research design, this study adopted Keynesian theory as a theoretical framework to guide the study. Several statistical tests, including correlation analysis, co-integration bound tests and regression modeling, were carried out to generate two models. External debt and internal debt were the dependent variables, while the explanatory variables were exchange rate, real gross domestic product and balance of payment. The generated models were further subjected to heteroscedasticity and stability tests. The findings show that current year external debt, lag one real gross domestic product and lag two balance of payment have a positive significant relationship, while, current year exchange rate, lag two and three of real gross domestic product and current year balance of payment have negative significant relationship with the external debt in Nigeria. In the same vein, in the current year, lags one, two, three and four of exchange rate and real gross domestic product have a positive relationship with internal debt. While, current year, lag one, two, and lag one real gross domestic product have a negative relationship with internal debt, this implied that internal debt has a negative impact on gross domestic impact while external debt has a positive impact on exchange rate, and balance of payment, respectively. The study outcome provides empirical evidence about deficit financing,