Analysis of Fiscal and Monetary Policies on Economic Growth: Evidence from Nigerian Democracy

The research deals with analysis of Nigeria democracy and its impact on fiscal and monetary policies. Secondary data from Central Bank of Nigeria (CBN) was mainly used for this study. The study adopted descriptive statistics, regression and correlation analysis on fiscal and monetary variables (i.e., inflation, interest rate, narrow money, broad money, government recurrent and capital expenditure). The objectives of the study are to describe the trend of policy variables; examine the impact of fiscal and monetary instruments on economic growth (i.e, Real Gross Domestic Product (RGDP) as proxy for economic growth) and to make recommendations based on the research findings. The results revealed that there has been fluctuation in the trend of policy variables in Nigeria (i.e., inflation rate, interest rate, narrow money, broad money, government re-current and capital expenditure) considered with reference to the stable democracy in Nigeria between 1999-2008. The results also show that 96.3% of the variation (model 1) has been explained by the explanatory variables, 98.1% of the variation in dependent variable (model 2) has been explained by the explanatory variable, 99.4% of the total variation in dependent variable has been explained by the explanatory variables (model 3) and 85.7% of the variation in dependent variable (model 4) has been explained by the explanatory variables. The results further showed that broad money and re-current expenditure have positive relationship with RGDP which shows that a unit increase in the aforementioned variables will lead to a unit increase in GDP, but re-current expenditure is 5% significant with broad money having no significant level. Narrow money, inflation, interest rate and capital expenditure have negative impact on GDP, though; interest rate is significant at 10% probability level. The correlation results further showed that narrow money, broad money and government recurrent expenditure are significant at 1% probability level while government capital expenditure is significant at 5% probability level with inflation and interest rate having no significant relationship and negatively related with RGDP. The study concluded that narrow money, broad money, government recurrent expenditure and capital expenditure are significant variables that affect economic growth in Nigeria.