An Assessment of the Relationship between Fiscal Policy Shocks, Foreign Aids and Nigeria Economy
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The relationship between fiscal policy shocks and Official Development Assistance ODA which is a proxy for Foreign Aids and their effects on the growth of the Nigerian economy has been a subject of debate for some times in among economic researchers. However, lack of consensus on this issue is one of the major reasons that prompted this study. The study used the vector autoregressive analysis (VAR)for its estimations. The VAR model identified oil price and exchange rate as the major external shock to fiscal policy in Nigeria, therefore they are both treated as exogenous variables. Also, government revenue and expenditure are identified as major fiscal policy shocks, while foreign aids act as transmission mechanism of the effect of the shocks to output (GDP) which is a proxy for economic growth. The results show that foreign aids in Nigeria are more responsive to external shocks (oil price and exchange rate) than the fiscal policy shocks. Both oil price shock and government revenue shocks are significant in determining the behaviour of the GDP. However, government revenue and expenditure shocks fail to have a commensurate positive effect that the oil price has on them and the GDP.
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