Dynamic Effects of Fiscal Policy, Inflation and Crude Oil Prices on Economic Growth in Nigeria: Evidence from ARDL and Granger Causality
Abstract
This study investigates the dynamic effects of fiscal policy, inflation, and crude oil prices on Nigeria's economic growth from 2000 to 2023, employing the Autoregressive Distributed Lag (ARDL) bounds testing approach and Granger causality tests. Using annual time-series data from the Central Bank of Nigeria and the Federal Inland Revenue Service, the analysis examines the long-run cointegrating relationships and short-run dynamics between real gross domestic product (RGDP), total tax revenue, government expenditure, inflation rate, crude oil prices, and exchange rates. The bounds test confirms the existence of a long-run equilibrium relationship (F-statistic = 5.74 \textgreater{} 4.18). Long-run estimates reveal that tax revenue, government expenditure, and crude oil prices positively influence economic growth with coefficients of 0.241, 0.198, and 0.412 respectively, while inflation and exchange rate depreciation negatively impact growth ($-0.056$ and $-0.133$). The error correction mechanism shows a rapid adjustment speed of $-0.603$, indicating that about 60.3\% of short-run disequilibria are corrected annually. Granger causality tests demonstrate unidirectional causality running from fiscal variables, oil prices, and exchange rates to RGDP. The study concludes that while fiscal policy remains a potent economic growth driver, its effectiveness is contingent upon macroeconomic stability, efficient public spending, and economic diversification away from oil dependence. Policy recommendations emphasize fiscal discipline, inflation control, exchange rate stabilization, and strategic diversification to foster sustainable economic growth.
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