Assessing the Relationships between Fiscal Deficit, Economic and Social Infrastructure in Nigeria: Evidence from an ARDL Approach

Oluwaseyi Joseph Tajudeen 1, Kafilah Lola Gold 2

1 Lagos State University, Ojo, Nigeria
2 University of Johannesburg, Johannesburg, South Africa

Abstract

In developing nations such as Nigeria, fiscal deficits are a central issue in economic discourse, particularly where they intersect with infrastructure development. This study explores the relationship between fiscal deficits and infrastructure development in Nigeria, focusing on both economic and social infrastructure, using annual time series data from 1986 to 2021. The aim is to investigate how fiscal deficits influence infrastructure development in both the short and long run, with a focus on the roles of government spending and access to key infrastructure services. The study hypothesises that fiscal deficits may exacerbate infrastructure gaps, particularly in education, healthcare, and transportation. Using the Autoregressive Distributed Lag (ARDL) model, the results reveal that in the short run, variables such as access to electricity, air transport passenger traffic carried, government spending on health, and air transport freight exhibit a detrimental effect on fiscal deficit, although these effects are not statistically significant. Conversely, the long-term estimates show that increased health and education spending significantly worsen the fiscal deficit, underscoring the fiscal burden of social infrastructure investment. The study suggests that strategic investments in education, health, and electricity are critical for long-term economic expansion. At the same time, it highlights the potential risks associated with excessive recurrent expenditure, which can undermine long-term fiscal stability. The theoretical implications of the findings align with Keynesian and Endogenous Growth theories, while practical significance lies in providing policy recommendations for strategic investment in infrastructure to foster economic development, enhance social well-being, and improve Nigeria’s global competitiveness.

Keywords

fiscal deficit; infrastructure development; Nigeria; ARDL model; education; healthcare.

JEL classification

References

1. Ubi, P., Inyang, J. (2018). Fiscal deficit and Nigeria’s economic development. International Journal of Economics, Commerce and Management, Vol. 6, Issue 5, 137–150. Available at: ijecm.co.uk/wp-content/uploads/2018/05/6510.pdf

          2. Aladejana, S.A., Okeowo, I., Oluwalana, F., Alabi, J. (2021). Debt burden and infrastructural development in Nigeria. International Journal Academic Research in Business and Social Sciences, Vol. 11, Issue 1, 419–432. doi.org/10.6007/IJARBSS/v11-i1/8518

          3. Jeffrey, M.S. (2019). Fiscal policy: Economic effects. Congressional Research Service, R45723, 1–15. Available at: www.congress.gov/crs-product/R45723

          4. Saleh, A.S., Harvie, C. (2005). The Budget Deficit and Economic Performance: A Survey. The Singapore Economic Review, Vol. 50, Issue 2, 211–243. doi.org/10.1142/s0217590805001986

          5. Musa, B.K. (2021). Theoretical review of the impact of fiscal deficits on economic growth in Nigeria. European Scientific Journal, Vol. 17, No. 1, 310–334. doi.org/10.19044/esj.2021.v17n1p310

          6. Goher, F., Ahmed, A., Rehman, W. (2011). Fiscal deficit and economic growth: An analysis of Pakistan's economy. International Journal of Trade, Economics and Finance, Vol. 2, No. 6, 501–504. dx.doi.org/10.7763/IJTEF.2011.V2.156

          7. Nwamuo, C. (2020). Impact of fiscal policy on the economic growth in Nigeria: An empirical analysis. European Journal of Business and Management, Vol. 12, No. 12, 37–50. doi.org/10.7176/EJBM/12-12-04

          8. Ravinthirakumaran, N., Kesavarajah, M. (2016). Causal nexus between fiscal deficit and economic growth: Empirical evidence from South Asia. International Journal for Innovation Education and Research, Vol. 4, No. 8, 1–19. doi.org/10.31686/ijier.vol4.iss8.575

          9. Olubunmi, A.B., John, N.C., Ololade, Y.M., Matthew, S.G. (2019). Fiscal policy and economic growth in Nigeria: An ARDL, Bound test and ECM Approach. Saudi Journal of Business and Management Studies, Vol. 4, No. 10, 800–805. doi.org/10.36348/SJBMS.2019.v04i10.002

          10. Buthelezi, E.M., Nyatanga, P. (2023). The dynamic relationship between government debt, fiscal consolidation, and economic growth in South Africa: A threshold analysis. Cogent Economics & Finance, Vol. 11, Issue 2, 2261329. doi.org/10.1080/23322039.2023.2261329

          11. Chinyere, C.N. (2021). Fiscal deficit and Nigeria economic growth (1990-2020). International Research Journal of Management, IT and Social Sciences, Vol. 8, No. 5, 411–433. doi.org/10.21744/irjmis.v8n5.1915

          12. Maji, A., Achegbulu, J.O. (2012). The impact of fiscal deficits on economic growth in Nigeria. International Business and Management, Vol. 4, No. 2, 127–132. doi.org/10.3968/j.ibm.1923842820120402.1190

          13. Abdullahi, A., Sieng, L.W. (2023). The effect of infrastructure development on economic growth: The case of sub-Saharan Africa. Journal of Infrastructure, Policy and Development, Vol. 7, Issue 2, 1–16. doi.org/10.24294/jipd.v7i2.1994

          14. Monacelli, T., Perotti, R. (2006). Fiscal policy, the real exchange rate and traded goods. The Economic Journal, Vol. 120, Issue 544, 437–461. doi.org/10.1111/j.1468-0297.2010.02362.x

          15. Neaime, S. (2015). Twin deficits and the sustainability of public debt and exchange rate policies in Lebanon. Research in International Business and Finance, Vol. 33, 127–143. doi.org/10.1016/j.ribaf.2014.09.004

          16. Zeyneloglu, I. (2018). Fiscal policy effectiveness and the golden rule of public finance. Central Bank Review, Vol. 18, Issue 3, 85–93. doi.org/10.1016/j.cbrev.2018.08.001

          17. Saleh, A.S. (2004). Public Sector Deficits and Macroeconomic Performance in Lebanon. Doctoral dissertation. University of Wollongong, NSW, Australia. Available at: ro.uow.edu.au/theses/364

          18. Timilsina, G., Stern, D.I., Das, D.K. (2024). Physical infrastructure and economic growth. Applied Economics, Vol. 56, Issue 18, 2142–2157. doi.org/10.1080/00036846.2023.2184461

          19. Awan, A.G., Anum, V. (2014). Impact of infrastructure development on economic growth: A case study of Pakistan. International Journal of Economics and Sustainable Development, Vol. 2, No. 5, 1–15. doi.org/10.37745/ijdes.13

          20. Owolabi-Merus, O. (2015). Infrastructure development and economic growth nexus in Nigeria. International Journal of Academic Research in Business and Social Sciences, Vol. 5, No. 1, 376–382. doi.org/10.6007/IJARBSS/v5-i1/1439

          21. Van, V.B., Sudhipongpracha, T. (2015). Exploring Government Budget Deficit and Economic Growth: Evidence from Vietnam's Economic Miracle. Asian Affairs: An American Review, Vol. 42, Issue 3, 127–148. doi.org/10.1080/00927678.2015.1048629

          22. Gold, K.L., Adetunji, K.O., Yusuf, H.A., Sulaiman, S. (2024). Electricity Production, Consumption, and Manufacturing Sector Performance in Nigeria: A Multi-Decade Analysis. Journal of Applied Economic Research, Vol. 23, No. 4, 1077–1098. doi.org/10.15826/vestnik.2024.23.4.042

          23. Nath, H.K., Liu, L. (2017). Information and communications technology (ICT) and services trade. Information Economics and Policy, Vol. 41, 81–87. doi.org/10.1016/j.infoecopol.2017.06.003

          24. Khusaini, K., Ramdani, H.C., Syamiya, E.N., Aisyah, I. (2022). Does the government expenditure on education and family income boost educational expansion?: Lesson from panel FMOLS. Review of Applied Socio-Economic Research, Vol. 24, Issue 2, 89–105. doi.org/10.54609/reaser.v24i2.140

          25. Qehaja, S.S., Qehaja, D., Arber, H., Marovci, E. (2023). The relationship between government health expenditure and economic growth: Evidence from western Balkan countries. International Journal of Applied Economics, Finance and Accounting, Vol. 15, No. 1, 10–20. doi.org/10.33094/ijaefa.v15i1.724

          26. Solow, R.M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, Vol. 70, Issue 1, 65–94. doi.org/10.2307/1884513

          27. Anderu, K.S., Omotayo, E.O. (2020). Agricultural output and government expenditure in Nigeria. Jurnal Perspektif Pembiayaan dan Pembangunan Daerah, Vol. 8, No. 2, 101–110. doi.org/10.22437/ppd.v8i2.9106

          28. Tanzi, V., Zee, H. (1997). Fiscal Policy and Long-Run Growth. IMF Staff Papers, Vol. 44, No. 2, 179–209. doi.org/10.5089/9781451947243.024

          29. Shrestha, M.B., Bhatta, G.R. (2018). Selecting appropriate methodological framework for time series data analysis. The Journal of Finance and Data Science, Vol. 4, Issue 2, 71–89. doi.org/10.1016/j.jfds.2017.11.001

          30. Gujarati, D.N., Porter, D. (2009). Basic Econometrics. 5th Edition. New York, McGraw Hill Inc., 922 p. Available at: ucanapplym.s3.ap-south-1.amazonaws.com/RGU/notifications/E_learning/0nline_study/Basic-Econometrics-5th-Ed-Gujarati-and-P.pdf

          31. Johansen, S., Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration – with applications to the demand for money. Oxford Bulletin of Economics and Statistics, Vol. 52, Issue 2, 169–210. doi.org/10.1111/j.1468-0084.1990.mp52002003.x

          32. Olawale, A.M., Kehinde, J.E., Gold, K.L., Agboola, Y.H., Adebayo, O.M., Modupe, O. (2023). The nexus between economic growth, institutional quality, and poverty in Nigeria. Journal of Emerging Economies & Islamic Research, Vol. 11, No. 3, 94–108. doi.org/10.24191/jeeir.v11i3.22417

          33. Engle, R.F., Granger, C.W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica, Vol. 55, No. 2, 251–276. doi.org/10.2307/1913236

          34. Pesaran, M.H., Shin, Y., Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, Vol. 16, Issue 3, 289–326. doi.org/10.1002/jae.616

          35. Tilahun Mengistu, S. (2022). Does fiscal policy stimulate economic growth in Ethiopia? ARDL approach. Cogent Economics & Finance, Vol. 10, Issue 1, 2104779. doi.org/10.1080/23322039.2022.2104779

          36. Adenomon, M.O., Ojo, R.O. (2020). Autoregressive distributed lag modelling of the effects of some macroeconomic variables on economic growth in Nigeria. Folia Oeconomica Stetinensia, Vol. 20, Issue 2, 1–19. doi.org/10.2478/foli-2020-0032

          37. Owusu-Manu, D.-G., Jehuri, A. B., Edwards, D. J., Boateng, F., Asumadu, G. (2019). The impact of infrastructure development on economic growth in sub-Saharan Africa with special focus on Ghana. Journal of Financial Management of Property and Construction, Vol. 24, No. 3, 253–273. doi.org/10.1108/JFMPC-09-2018-0050

          38. Ogunlana, F.O., Omolara, Y.J., Taiwo, A.B. (2016). Infrastructure finance and development in Nigeria. Nigerian Chapter of Arabian Journal of Business and Management Review, Vol. 3, No. 12, 1–11. dx.doi.org/10.12816/0027217

          39. Obinabo, C.R., Agu, B.O. (2019). Effect of fiscal deficit on selected macroeconomic variables in Nigeria: A time series analysis, 1986-2018. International Journal of Academic Research in Economics and Management Sciences, Vol. 8, Issue 2, 68–80. doi.org/10.6007/IJAREMS/v8-i2/6276

          40. Sanya, O., Abiola, L.N. (2015). Fiscal deficit and economic growth, Nigeria experience. International Journal for Innovation Education and Research, Vol. 3, No. 11, 6–15. dx.doi.org/10.31686/ijier.vol3.iss11.459

          41. Kim, N. (2021). A Jarque-Bera type test for multivariate normality based on second-power skewness and kurtosis. Communications for Statistical Applications and Methods, Vol. 28, No. 5, 463–475. doi.org/10.29220/csam.2021.28.5.463

About Authors

Oluwaseyi Joseph Tajudeen

M.Sc Economics, Researcher, Department of Economics, Faculty of Social Sciences, Lagos State University, Ojo, Lagos State, Nigeria (Badagry Expressway, P.M.B. 0001, LASU Post Office, Ojo, Lagos State, Nigeria); ORCID orcid.org/0009-0006-9655-659X e-mail: oluwaseyijosephtj@gmail.com

Kafilah Lola Gold

Postdoctoral Research Fellow, DSI/NRF South African Research Chair in Industrial Development, College of Business and Economics, University of Johannesburg, Johannesburg, South Africa (Corner Kingsway, University Rd, Johannesburg, 2092, South Africa); ORCID orcid.org/0000-0002-0018-2153 e-mail: kgold@uj.ac.za

For citation

Tajudeen, O.J., Gold, K.L. (2025). Assessing the Relationships between Fiscal Deficit, Economic and Social Infrastructure in Nigeria: Evidence from an ARDL Approach. Journal of Applied Economic Research, Vol. 24, No. 3, 873-900. https://doi.org/10.15826/vestnik.2025.24.3.029

DOI: https://doi.org/10.15826/vestnik.2025.24.3.029

Download full text article: