EFFECT OF DEFICIT FINANCING ON UNEMPLOYMENT RATE IN NIGERIA

CHAPETR ONE

INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

Abstract

Deficit Financing plays an extraordinary and growing role in achieving full employment in Nigeria sustainable economic growth, price stability and poverty reduction. Theoretically, both Keynesian and neoclassical economists provided tools for government intervention, particularly with regard to government budget deficit financing. This study is aimed at examining the effect of deficit financing on unemployment rate in Nigeria. The study indicate that the validity of long run equilibrium relationship between unemployment (UNP) and the explanatory variables (external source of deficit financing (EXF), ways and means source of deficit financing (WM), banking system source of deficit financing (BSF), non-banking public source of deficit financing (NBPF), interest rate (INTR) and exchange rate (EXR)). More so, it is concluded that the Error Correction Model (ECM) is not a spurious model as the computed R2value of 0.913214 is lower than 1.334885 (Durbin Watson Statistics).

 CHAPTER ONE

INTRODUCTION

• Background of the study

In Nigeria, budget deficit has been blamed for causing much economic crises, high inflation, poor investment performance and growth (Appah and Chigbu, 2013). One of the most important objectives of fiscal policy is to reduce national debt and to check the interest payment on such debt from rising so as to prevent high deficit in the future. However, Nigerian government budget deficit witnessed an increase in the past decades. For instance, from 1981, deficits increased from N3.9billion to N8.2billion in 1986 and it further increased to N15.1billion in 1989. From 1990, the rising trend of budget deficit continued except in 1995 when the budget witnessed or registered a surplus of N1billion. In 1998, an overall deficit jumped to N133.3billion and in 2002, it increased up to N301.4billion. Starting from 2003, government budget deficit declined from N202.7billiom to N188.2billion, N150.6billion and N101.3billion in 2003, 2004, 2005 and 2006 respectively. Another increase was witnessed from 2007 at N107billion to N1.5trillion in 2013 (CBN, 2014).
Meanwhile, the value of deficits as a percentage of Gross Domestic Product (GDP) declined to -0.1 percent in 1999. The share of deficits in total GDP has been declining from -2.0 percent in 2003 to -1.1 percent in 2005 and -0.6 percent in 2006. Nigeria recorded budget deficit equal to 1.80 percent of the country’s GDP in 2013 (Nigerian Budget Office, 2014). The Nigerian government budget averaged 2.10 percent of the GDP from 2006 up till 2013, reaching an all-high  4.60 percent of GDP in 2008 and also recorded low of -6.6 percent of GDP in 2009 (Nigerian Budget Office, 2014).  Furthermore, the implication of deficit financing on economic stability through growth, stable inflation and unemployment rate has been one of the subjects of a long standing debate in macroeconomics. Three views emerged from the literature revealing the relationship between budget deficit and macroeconomic variables. Keynesian economics supports the ideas that budget deficit has, by the working of the multiplier, a positive effect on the macroeconomic activities (Appah and Chigbu, 2013). Neoclassical economist argues that budget deficit has negative effects on economic stability as much as Ricardian equivalence approach supports the view of neoclassical economist (Appah and Chigbu, 2013). These three contrasting views show that a large budget deficit is a source of economic instability. Ojong and Hycent (2013) further observed that deficit financing in Nigeria is characterized by poor policy implementation, inconsistence of government macroeconomic policies, low growth of private investment, decline growth in real sector and high level of indiscipline in public sector.   Based on the forgoing relationship between deficit financing and economic stability, a study such as this is necessary. This study, therefore, is designed to investigate the implications of deficit financing on economic stability in Nigeria.

  1.2 Statement of the Problem 

The issue of deficit financing certainly is not new but the level of economic stability of the last decades has brought about more interest in fiscal policy issues that will encourage growth. The government expenditure has been increasing each year because of government spending activities. An increase in government revenue is not sufficient to finance increased government expenditure which leads to deficit. Government revenue has not been ever efficient and it causes large difference between expenditure and revenue. Government always borrows from both internal and external sources to finance such large difference.   

• OBJEFCTIVE OF THE STUDY

The objectives of the study are;

1. To determine whether the Nigerian economy has capacity for capital absorption
2. To determine factors affecting the effectiveness of budget deficits to significantly reduce unemployment
3. To ascertain the relationship between deficit financing and unemployment rate
4. To recommend measures that will reduce deficit in Nigeria
   • RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H₀: Nigerian economy has no capacity for capital absorption

H₁: Nigerian economy has capacity for capital absorption

H₀²: there are no factors affecting the effectiveness of budget deficits to significantly reduce unemployment

H₂: there are factors affecting the effectiveness of budget deficits to significantly reduce unemployment

• SIGNIFICANCE OF THE STUDY

This study will give a clear insight on effect of deficit financing on unemployment rate in Nigeria. The study will be beneficial to Nigeria government and the general public. The study will also serve as reference to other researchers that will embark on this topic.

• SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers effect of deficit financing on unemployment rate in Nigeria. The researcher encounters some constrain which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

• DEFINITION OF TERMS

FINANCIAL DEFICIT: A fiscal deficit occurs when a government’s total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits. For example, economist John Maynard Keynes believed that deficits help countries climb out of economic recession.

UNEMPLOYMENT RATE: Unemployment is the situation of actively looking for employment but not being currently employed. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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