Econometric analysis of the deficit financing options-growth inclusiveness nexus in India and Nigeria
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Econometric analysis of the deficit financing options‑growth inclusiveness nexus in India and Nigeria Maryjane Chigbo1 · Oluwatosin Adeniyi1 · Samuel Orekoya1 Accepted: 23 October 2020 © Editorial Office, Indian Economic Review 2020
Abstract The crux of the study was to ascertain whether (and to what extent) the different deficit financing options impacted inclusive growth in India and Nigeria. The paper conducted an empirical analysis using data covering the period from 1989 to 2018 using the ARDL model. Some interesting results were obtained. First, foreign aid positively impacted inclusive growth in both short and long run for Nigeria. Contrarily, the results for India presented an inverse relationship between aid and inclusive growth with no statistical significance in the short and long run. Second, the impact of borrowing on inclusive growth was significant and negative for short run and long run in India. In the Nigerian case, the findings highlighted a positive and significant effect of borrowing on inclusive growth for both time horizons. Third, on the issue of human capital investments, the government expenditure on education effect on growth inclusiveness was found to be positive and negative in the short and long run, respectively, for India. On the other hand, government expenditure on health was negative in the short run and positive in the long run in Nigeria. Thus, there are a number of relatable policy recommendations viz: (i) Nigeria needs to utilize its borrowing options more effectively by undertaking relevant infrastructural and human capital investments; (ii) Instead of reliance on foreign aid for growth, Nigeria could join the liquidity race by attracting more diaspora remittances like its comparator India; (iii) The government of India should devote even more resources to capital expenditure to drive long-term investments and ensure that a greater number of citizens benefit from the process. Keywords Deficit financing · Inclusive growth · Auto regressive distributed lag model · India · Nigeria JEL Classification C32 · E60 · E63 · F43 · O11
* Oluwatosin Adeniyi [email protected] 1
Department of Economics, Faculty of Economics and Management Sciences, University of Ibadan, Ibadan, Nigeria
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1 Introduction Public finances are essential tools that play a very critical role in protecting lives and properties of the people alongside creating physical infrastructures to expand economic activities through employment generation and in providing social infrastructure to empower them to get productively employed (Rao 2017). Deficit financing arises when a government is operating a budget deficit in the economy.1 This entails drawing financial resources internally and externally to finance economic activities with the major aim of achieving higher growth. Although budget deficit is crucial in making the unproductive sector to be productive, raising of capital formation and economic restoration, its unsustainability typically places the economy in a prec
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