Fiscal Financing and Money Supply in Nigeria: An Empirical Analysis

  • Abdurrauf Babalola Al-Hikmah University, Ilorin, Nigeria.
  • Saidat. O. Onikosi-Alliyu Al-Hikmah University, Ilorin, Nigeria.
  • Rafiu. A. Mustapha Al-Hikmah University, Ilorin, Nigeria.
Keywords: Fiscal Policy, Fiscal Financing, Money Supply

Abstract

The study investigated the impact of fiscal financing on money supply in Nigeria. Data between 1970 and 2017 was sourced from the CBN statistical bulletin. Money supply (M2) was made the dependent variable while foreign and domestic borrowing as explanatory variables. Descriptive statistics, pair-wise correlation matrix, ARDL and ECM were employed to analyses the data set. The descriptive statistics indicated that all variables were normally distributed except foreign borrowing. The correlation matrix showed that all variables have average positive relationship except for the relationship between money supply and domestic borrowing which indicated a very high association. From the ARDL analysis, the finding revealed that, in the short run, foreign borrowing had negative and significant impact on money supply at instant and one-lag periods. Also, in the short run, at impulse period, domestic borrowing had a negative and significant impact. However, at one-lag period, domestic borrowing indicated a positive and strongly significant impact on money supply. The adjustment path of money supply using the model was quite insignificantly weak. In the long run, both foreign and domestic borrowing had positive and significant impact on money supply in the Nigerian economy. Finally, the result revealed that domestic borrowing had more and symbolic impact on money supply than foreign borrowing. The study therefore suggests that government could make use of borrowing from the foreign source than domestic, as more foreign borrowing will reduce money supply in the short run. In line with this, the government could choose either of the two sources of financing, as that will depend on the monetary policy target.

Author Biographies

Abdurrauf Babalola, Al-Hikmah University, Ilorin, Nigeria.

Department of Economics, Faculty of Management Sciences

Saidat. O. Onikosi-Alliyu, Al-Hikmah University, Ilorin, Nigeria.

Department of Economics, Faculty of Management Sciences

Rafiu. A. Mustapha, Al-Hikmah University, Ilorin, Nigeria.

Department of Economics, Faculty of Management Sciences

Published
2019-07-01
How to Cite
Babalola, A., Onikosi-Alliyu, S. O., & Mustapha, R. A. (2019). Fiscal Financing and Money Supply in Nigeria: An Empirical Analysis. Pakistan Journal of Economic Studies, 2(2). Retrieved from https://journals.iub.edu.pk/index.php/pjes/article/view/15