Effect of Monetary and Fiscal Policy on Nigeria’s Economic Growth

Published on International Journal of Economics & Business
ISSN: 2717-3151, Volume 1, Issue 1, page 178 – 188
Date: 28 October 2018
© Copyright International Journal of Zambrut

Umar Lawal Aliyu

Umar Lawal Aliyu
Faculty of Management, Department of Business Administration
LIGS University Hawaii, USA

Abstract
This study examined and assessed the empirical link on the effect of fiscal and monetary policy on the Economic Growth of Nigeria. Establishing financial stability and economic growth entails conscious actions by regulatory agencies to stem wide fluctuations in the key macroeconomic indicators. The high point of economic growth of any country include, strengthening the Financial Stability Committee within the its financial institutions, establishment of macro-prudential rules, developing capital markets, development of directional economic policy and of course most importantly the monetary and fiscal policies. The objectives were to determine factors of fiscal and monetary policy that contributed to the growth of Nigeria economy. It made use of data from Central Bank of Nigeria (CBN) Bulletin, journals and employed the ordinary least squares method of statistical analysis. In the research work we he have understood that monetary policy is implemented primarily by the monetary authorities, particularly the central bank, while fiscal policy is implemented by the fiscal authorities, particularly the Ministry of Finance or Treasury. Although monetary and fiscal policies pursue the same ultimate objective, i.e. the attainment of high, stable and sustainable economic growth, they employ different instruments. The research study has noticed that the objectives of monetary policy are ultimately similar to the objectives of fiscal policy and they play crucial role in providing sustainable and credible economic stability in a country, thus creating the environment fast economic growth. The research recommends that policy makers should pay attention to monetary and fiscal variables in their attempt to maintain fiscal stability.

Keywords: Central Bank, Development, Economic Growth, Fiscal Policy, Monetary Policy.

1. Introduction
1.1 Background of the Study
Governments all over the world formulate and implement policies for taxation and public spending. These policies can have major impacts on economic growth, income distribution, and poverty, and thus they tend to be at the centre of economic growth and development. Essentially, monetary policy refers to the combination of discretionary measures designed to regulate and control the money supply in an economy by the monetary authorities with a view of achieving stated or desired macro-economic goals. Another point of view posits that monetary policy refers to any conscious action undertaken by the monetary authorities to change or regulate the availability, quantity, cost or direction of credit in any economy, in order to attain stated economic objectives (Nwankwo, 2000).
Fiscal Policy is the process by which Government uses public expenditure, debt, taxation and other revenues to influence economic activities with a view to achieving the set macroeconomic objectives of full employment, favourable balance of payment, price stability and output growth among others. Okunrounmu (2003) described fiscal policy as the deliberate changes in the levels of government expenditure, taxes and other revenue as well as borrowing with a view to achieving national goals or objectives such as price stability, full employment, economic growth and balance of payments equilibrium.
Macroeconomic policy plays crucial role in providing sustainable and credible economic stability in a country, thus creating the environment for fast economic growth. This task is primarily achieved through monetary and fiscal policies as its fundamental components …….

2. Literature Review
2.1 Theoretical Framework
Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the per cent rate of increase in real gross domestic product, or real GDP, (Joseph Schumpeter). While economic development is the growth of the standard of living of a nation’s people from a low-income (poor) economy to a high-income (rich) economy. When the local quality of life is improved, there is more economic development. When social scientists study economic development, they look at many things. As observed by Akpakpan (1999), economic development is used to describe the process of improvement in the various aspects of the economy and the society it supports. The improvement is usually shown in the kinds of desirable changes such as reduction in the level of unemployment, degree of personal and regional inequalities, level of absolute poverty and increase in the real output of goods and services. Others areas of desirable changes include improvement in literacy, housing, health services and in the production capacity. The primary reason for desiring economic development or growth is to raise the general standard of living within the economy. Thus, Economic growth has received much attention among scholars.
Economic growth has long been considered an important goal of economic policy with a substantial body of research dedicated to explaining how this goal can be achieved. Historically, there has been a wide divergence of opinions about the effect of monetary and fiscal policies on the economy. These theories were developed on observed economic trend in both developed and ………

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