Main Article Content
Abstract
Fiscal policy actions can be used to stimulate sectoral growth, either by increasing or decreasing government spending or tax. Thus, this study examined the effect of fiscal policy on sectoral output in Nigeria based on annual time series data from 1981 to 2021. An endogenous model, fashioned in line with the standard production function formed the basis of the model specification for the variables of interest. An ARDL model was adopted in order to capture both the short-run and long-run dynamics of the model. The ARDL Bounds Test method of establishing cointegration provided evidence that there is cointegration when Mining (MIN), Manufacturing (MAN), Building and Construction (BCN) and Wholesale retail (WRT) are used as dependent variables. However, when Agricultural output (AGR) and Service (SER) are used as the dependent variable, there is no cointegration. The ARDL long run results revealed that fiscal policy, as measured by total government expenditure has a significant negative effect on the overall output. With regards to sectoral output, fiscal policy variable had a significant long-run negative impact on Agricultural output, Building and Construction, Mining and Services while it has a positive impact on manufacturing and Wholesale and Retail output. In the short run, fiscal policy has a significant positive impact on agricultural output, manufacturing and mining sectors while the impact is negligible on Building and Construction, Wholesale and retail and service output. As a policy prescription, a sector specific fiscal spending must be put in place to drive sectoral output growth in Nigeria.