AN EMPIRICAL ANALYSIS OF THE EFFECTS OF FISCAL CENTRALISATION ON ECONOMIC GROWTH IN NIGERIA (1980 – 2008)

  • : Ms Word, Ms Word Format
  • : 66 Pages
  • : ₦3,000 | $25 | ₵60 | Ksh 2720
  • : 1-5 Chapters
  •  
  • Click to DOWNLOAD Materials

AN EMPIRICAL ANALYSIS OF THE EFFECTS OF FISCAL CENTRALISATION ON ECONOMIC GROWTH IN NIGERIA (1980 – 2008)

Abstract:

Fiscal centralization in Nigeria has generated regional, vertical and horizontal contestations over resource control issues. These contestations have led to militancy and open rebellion that have resulted in oil production shut- in, rising costs of operations in the oil industry, risks and uncertainties for investments and a rise in the costs of maintaining security in Nigeria. The literature on fiscal centralization has been dominated by the measurements of the impact of fiscal centralization on economic growth and the results have been mixed. This study however, measures the economic cost of fiscal centralization and assesses its sustainability in the light of the consequences of the militancy and rebellion that have been associated with it. Impacts such as production shut-in, rise in operational costs and uncertainties as well as growth in cost of maintaining security have led to some economic effects that need to be measured and analyzed. The study develops a framework to measure the costs of fiscal centralization and a macro econometrics model was built to analyze the impact and sustainability of fiscal centralization in Nigeria. The macro-econometric model comprises of five sectors, namely, aggregate demand, aggregate production, Nigeria’s fiscal system, financial sector and external sector. The model was estimated using Two Stages Least Squares techniques and solved to derive baseline equilibrium values of the endogenous variables. The model was found to effectively track the key turning points of the endogenous variables and was then used to conduct simulation experiments under three scenarios. (a) The impact of the loss of oil revenue by oil related cost as a result of militancy; (b) the impact of excess expenditure on defence and internal security if invested in the agricultural sector; and (c) a one percent increase in gross fixed capita formation. Findings from the study revealed that the oil related cost, expenditure allocation cost and social/human cost of maintaining fiscal centralization in the country are very high and rising. From the macro-econometrics model, it was found that fiscal centralization impact negatively on aggregate demand by reducing private consumption expenditure, government consumption expenditure as well as investment by 9.5%, 6.2% and 1.5% respectively. Again, while money supply reduced by 5.4%, the outputs from agriculture and manufacturing sub-sectors declined, by 2.5% and 2.1% respectively. It is clear that while the oil related cost is reducing the oil revenue component of federally collected revenue, the deterioration in the real sector is reducing the non-oil revenue component. Based on these results and the forecast values of oil related cost and expenditure allocation cost, it was established that the present fiscal centralization is not sustainable. We therefore recommend a negotiated decentralization or economic and political actions that will reduce militancy and its associated economic costs.

AN EMPIRICAL ANALYSIS OF THE EFFECTS OF FISCAL CENTRALISATION ON ECONOMIC GROWTH IN NIGERIA (1980 – 2008)

Sharing is caring!

Leave a Reply