EFFECT OF FISCAL AND MONETARY POLICY INSTRUMENTS ON ECONOMIC GROWTH OF NIGERIA FROM 1985-2016
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The study examined the effect of fiscal and monetary policy instruments on economic growth of Nigeria in order to determine the appropriate mix of both policies in promoting economic growth in Nigeria. Keynesian theory was adopted as the theoretical framework of the study. The study employed ordinary least square method and whereby the time series properties of fiscal and monetary variables were first examined using Diagnostic test such as Descriptive statistics of the data, followed by Augmented Dickey-Fuller unit root test and also Johansen cointegration test among the series using annual data for the period 1985-2016. Data were sourced mainly from Statistical Bulletin published by the Central Bank of Nigeria and World Bank Economic Indicator. The unit root test results revealed that all fiscal and monetary policy variables are non-stationary and attained stationarity at first and second difference. The result also showed that all the fiscal and monetary variables of interest co-integrated with the economic growth series in the country. This suggests that there is a long run relationship among fiscal and monetary variables and economic growth. The study, however, found that the current level of broad money supply, domestic interest rate, and government expenditure exerted negative influence on growth, while current level of exchange rate, and government revenue have positive effect on economic growth of Nigeria. Therefore, we recommend that fiscal and monetary policy instruments should be combined in making decisions that will promote economic growth of Nigeria both in the short and long run. The study concluded that fiscal and monetary are still complementary in promoting economic growth of Nigeria.
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