Fiscal Policy Dynamics and Economic Growth in Nigeria: ARDL and Structural Stability Evidence

Abstract

This study examines the effect of fiscal policy dynamics on economic growth in Nigeria using annual time-series data from 1981 to 2023. Real Gross Domestic Product was used as the measure of economic growth, while Total Government Expenditure, Oil Revenue, Non-Oil Revenue, Total Federally Collected Revenue, Federation Account Statutory Allocation, Federal Government Retained Revenue and Total Exports were used as fiscal policy indicators. The study applied the Autoregressive Distributed Lag framework, Error Correction Model, Newey–West robust estimation and structural stability diagnostics to assess both short-run and long-run relationships. The unit root results showed that all variables were integrated of order one, I(1). The ARDL bounds test confirmed a long-run equilibrium relationship among the variables, with an F-statistic of 6.7537 and statistical significance at the 1% level. The long-run results showed that Total Government Expenditure, Non-Oil Revenue, Federation Account Statutory Allocation and Total Exports had significant effects on economic growth, while Oil Revenue, Total Federally Collected Revenue and Federal Government Retained Revenue were not statistically significant. In the short run, Non-Oil Revenue and Federation Account Statutory Allocation had positive effects, whereas Total Exports had a negative effect. The error correction coefficient indicated that 13.1% of short-run disequilibrium was corrected annually. The findings emphasise the importance of non-oil revenue mobilisation, efficient public expenditure and fiscal discipline for sustainable economic growth in Nigeria.