Fiscal Federalism and Economic Growth in Nigeria: An Empirical Analysis

Abstract

Nigeria as a nation operates a federal structure of government, ‘Federalism’ refers to the existence in a country of more than one level of government, each with different expenditure responsibilities and taxing powers. The major aim of this work is to assess the impact of fiscal federalism and government expenditure on economic growth in Nigeria. Secondary data employed in this work was collected from the Central Bank of Nigeria's (CBN) Statistical Bulletin, CBN Annual Report and Statement of Accounts, National Bureau of Statistics (NBS) and The World Bank Group for years 2000, 2017 and 2018 and part of 2019, respectively. The data covers the period, 1990-2017 on an annual basis. Ordinary Least Square (OLS) was used to estimate multiple regression model where Gross Domestic Product (GDP) as dependent variable and independent variables were interest rate, inflation rate, exchange rate, growth rate of share of federal government from the Federation account, growth rate of share of state government from the federal account, growth rate of share of local government from the Federation account. The results obtained from the regression shows that there exists a positive relationship between the economic growth and share of federal revenue, state government revenue, exchange rate and interest rate from the federation account and economic process in Nigeria. From the above result, it can, therefore, be concluded that a policy to maintain macroeconomic stability by controlling the rate of inflation within the reasonable limit is required to promote economic growth.