An Empirical Analysis of the Effect of Fiscal Policy on Economic Growth in Sub Saharan Africa: Emphasis on Nigeria and Ghana

Authors

  • Charles Odinakachi Njoku
  • Linus Eze Akujuobi
  • Emmanuel Ezeji Chigbu
  • Uzoamaka Gloria Chris-Ejiogu

Abstract

This research examined the effect of Fiscal Policy on the Economic Growth of Sub Saharan Africa using data from Nigeria and Ghana for the period 1986-2017. Fiscal Policy was disaggregated into Tax Revenue, Oil Revenue, Capital Expenditure, Recurrent Expenditure and Deficit Financing while the Real Gross Domestic Product was the proxy for Economic Growth for both Ghana and Nigeria. The data set for these variables was collected, and necessary tests were conducted. The Philips-Perron Unit Root Test conducted revealed that all the variables were stationary at First Difference which confirmed that there is no unit root in the variables. The Jahansen Cointegration test suggested the existence of a long run effect of Fiscal Policy on Economic Growth for both Ghana and Nigeria. So, the Vector Error Correction Mechanism was adopted and it confirmed the existence of a long run effect of Fiscal Policy on Economic Growth in both Ghana and Nigeria. The long run estimation showed F.Statistic 71.13 and Prob.(F.Statistic) 0.0000 revealing that Fiscal Policy has a significant long run effect on economic growth in Nigeria. The long run estimation for Ghana also has F.Statistic 3.5807 and Prob.(F.Statistic) 0.008388 and it is statistically significant at 5% level of significance. This means that Fiscal Policy has significant long run effect on economic growth in Ghana. But, not all the individual explanatory variables have the much expected significant long run effect on economic growth in both countries studied. For Nigeria, only Tax Revenue and Deficit Financing have significant effect on economic growth in the country at 5% level of significance. For Ghana, only Oil Revenue and Deficit Financing have significant long run effect on economic growth in Ghana at 5% level of significance. The research recommended an overhaul of fiscal policy in Sub Saharan Africa to encourage strict fiscal discipline and the diversification of revenue sources in Nigeria to reduce the dependence on oil revenue in the country.

Key words: Fiscal Policy, Economic Growth, Tax Revenue, Oil Revenue, Capital Expenditure, Recurrent Expenditure, Deficit Financing, Sub Saharan Africa

Downloads

Published

2021-05-21

Issue

Section

Articles