Fiscal Policy and Economic Growth in Nigeria Using ARDL, DOLS and FMOLS Estimators

Abstract

This study investigates the long run relationship between fiscal policy and economic growth in Nigeria using the Autoregressive Distributed Lag (ARDL), Dynamic Ordinary Least Squares (DOLS) and Fully Modified Ordinary Least Squares (FMOLS) estimators. A set of annual data from 1981 to 2023 were employed, with RGDP as the dependent variable and seven explanatory variables. The stationarity of the data was analyzed using Phillips–Perron and KPSS tests, and a significant long-run relationship was confirmed by the ARDL bounds test (F = 6.7537, p < 0.01). The ARDL estimates indicate positive and significant long run relationships for total government expenditure, non-oil revenue and federation account statutory allocation, while there is a negative relationship for total exports at the 10% level. The error correction coefficient (−0.1310) suggests over time, there will be adjustments towards long run equilibrium. DOLS and FMOLS estimates vary in size, magnitude and significance, thus reflecting estimator sensitivity. The results highlight the importance of enhancing the efficiency of non-oil revenues mobilization and public expenditure efficiency for sustainable economic growth.