Budget Deficits and Current Account Disequilibrium in Nigeria: an Econometric Investigation, 1970 - 2010.

Budget Deficits and Current Account Disequilibrium in Nigeria: An Econometric Investigation (1970-2010)

BY

Iyeli I. Iyeli, (Ph.D), Clement Utting and Jacob O. Owan
Department Of Economics
University Of Calabar
Calabar, Nigeria e-mail:[e-mail]; Tel: [phone]

Abstract

This study on budget deficits and current account disequilibrium in Nigeria seeks to investigate the effects of budget deficits on current account within the time frame of 1970-2010. Data on this study were sourced from the publication of CBN and NBS. The study discovered that apart from inflation which caused a reduction in the current account balance of Nigeria, the rest of the variables particularly budget deficits stimulates an increase in Nigeria’s current account. The study was conducted using the techniques of co-integration and error correction mechanism. However, some policy recommendations have been made believing that government through these recommendations will consider it appropriate for the growth of the Nigeria economy and curtail unnecessary fluctuations in her balance of payments.

Keyword: Budget Deficits, Current Account Balance, Disequilibrium, macroeconomic policy and macroeconomic management

1 Introduction The major problem of macroeconomic management in the third world countries including Nigeria has been the persistence of budget deficit and current account disequilibrium, which normally leads to the overall balance of payments disequilibrium. In these developing economies, the phenomenon is characterized by undue hardship, decline in external reserves, external debts problems, low per-capita income, inflation, corruption to mention but a few. Consequently, the major preoccupation of macro-economic policy makers is the maintenance of healthy and sustainable balance of payments stability. Budget deficit which is an excess of expenditure over revenue has some macroeconomic links with balance of payments deficit which is the

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