ONUORAH, A. C.
Department of Accounting, Banking, and Finance
Delta State University, Abraka, Asaba Campus
This paper investigated the effect of fiscal imbalance on the economic development of Nigeria with a specific focus on monetary and trade policy responses from 1983 to 2019. Monetary policy was controlled (broad money supply and interest rate) and debt policy (total debt to GDP ratio) responses. Data was from the Central Bank of Nigeria (CBN, 2019) and the World Bank Development Index (WDI, 2019), alongside others. The augmented Dicker fuller test, Johanson Cointegration tests were used to analyze the sourced data while the Parsimonious Error Correction Model was used to test the research hypothesis. Result evidenced that past values of fiscal imbalance have adverse though significant effects on the economic development of Nigeria over the study period. Again, current fiscal dominance sticks at monetary policy. Further, past values of debt policy proxies and interest rate positively yet significantly mediate between fiscal imbalance and economic development while broad money supply did not. Conclusively, fiscal imbalance, debt policy and interest rate are major determinants of economic development. In recommendation, instead of encouraging excessive spending, the Nigerian government should focus more on capital projects. More so, trade policy and sustained prime lending rate should target the economy.
Keywords: Fiscal Imbalance, Economic Development, Monetary and Debt Policy Response