Global Journal of Human Social Science, E: Economics, Volume 22 Issue 7

but positively and significantly impacted real interest rates. Thus, the study concluded that due to the negative impact on economic growth, fiscal deficit should be reduced. Adegboyo, Efuntade, & Efuntade (2020) used ARDL to examine the impact of fiscal deficit on economic growth in Nigeria for the period 1980 to 2018. The study found that fiscal deficit and exchange rate significantly but negatively impacted economic growth. This finding agrees with Chukwu, Otiwu and Okere (2020) but contradicts Akanmobi and Unachukwu (2021) and Musa (2021). This result implies that the Nigerian economy deteriorates as more deficits are accumulated. This position was maintained by Miftahu, Rosini, & Tunku (2017), who examined the effect of fiscal deficit on the Nigerian economy. Using the VAR technique, the study found that fiscal deficit negatively impacted economic growth rate. Momodu & Monogbe (2017) investigated the factors responsible for public financing gap in Nigeria from 1983 to 2016. Using the Error Correction Mechanism (ECM), the study found that both public revenue and public spending positively and significantly impacted budget deficit. This suggests that as public revenue and public spending increase, budget deficit also increases, which contradicts the a priori expectation. Furthermore, the study found that economic development positively and significantly influenced budget deficit. This implies that increase in developmental projects widens public financing gap (fiscal deficit) in Nigeria. In another study, Ibrahim (2017) investigated the effect of fiscal deficit on money demand using the ECM model. The study found short-run and long-run positively significant relationship between money demand and fiscal deficit. Therefore, the study suggested emphasis on the efficiency of public expenditure. Wuyah & Amwe (2015) analyzed the impact of fiscal deficit on some selected macroeconomic variables in Nigeria for the period 1970 to 2013. Using the Vector Auto-regression (VAR) technique, the study found that fiscal deficit positively and significantly impacts inflation but negatively and significantly impacts money supply and exchange rate. The study concluded that fiscal deficit is a major cause of macroeconomic instability in Nigeria. Further still, Greg and Okoiarikpo (2015) compared the impact of fiscal deficit on economic growth during the military and democratic regimes in Nigeria. The Chow test result revealed that fiscal deficit significantly impacted economic growth during the military regime, while it had insignificant impact on economic growth during the democratic regime. Interest rate had insignificant impact on economic growth during both regimes, while gross fixed capital formation significantly impactedeconomic growth during both regimes. Osuka & Achinihu (2014) examined the impact of fiscal deficit on macroeconomic variables in Nigeria for the period 1981 to 2012. Granger causality result revealed unidirectional causality flowing from GDP to fiscal deficit. However, there was no causal relationship between fiscal deficit and interest rate, fiscal deficit and inflation and fiscal deficit and exchange rate. The study noted that fiscal deficit poses significant impact on macroeconomic performance in Nigeria by crowding in investment through reduction in interest rate. Hence, public spending should be directed towards capital goods in order to achieve desirable economic growth and development. In summary, existing studies provide evidence to the fact that fiscal deficit significantly impacts the economy. However, there is need for further study to establish whether the impact is harmful or beneficial. Also, empirical studies have revealed the key role of fiscal deficit in causing macroeconomic instability, hence the need to ascertain the level of influence of fiscal deficit on the economy and map out the route to achieving sustainable economic development. III. T heoretical F ramework and M odel S pecification This study draws from the dual-gap theory which holds that due to low domestic saving and the resultant financing gap, external borrowing is inevitable in an economy in order to meet budgetary needs. Therefore, external debt (EDT) can be expressed as resulting from private domestic resource gap (I - S), public domestic resource gap (G - T) and trade gap (M - X). Considering the fact that external debt is mostly denominated in foreign currency and attracts interest payment, the study will allow for the impact of exchange rate (EXR) and interest rate (INT). Hence, the functional form of the model is presented as: 3.1 In econometric form, the ARDL model can be specified thus: 3.2 Where EDT represents external debt, FSD represents fiscal deficit or public financing gap (G –T), ISG represents private financing gap (I – S), CAD represents current account deficit (M – X), EXR represents exchange rate, INT represents interest rate. α 0 is the intercept, α 1 - α 5 represents the elasticities of the corresponding variables. ∆ is the difference operator and is the error term; representing all other Volume XXII Issue VII Version I 38 ( ) Global Journal of Human Social Science - Year 2022 © 2022 Global Journals E Implication of Fiscal Deficit Financing on External Debt Sustainability in Nigeria ti ti ti ti ti ti ti ti ti ti ti ti INT EXR CAD ISG FSD INT EXR CAD ISG FSD EDT , , 5 , 4 , 3 , 2 , 1 , 5 , 4 , 3 , 2 , 1 0 , ln ln ln ln ln ln ln ln ln ln                           ) , , , , ( INT EXR CAD ISG FSD f EDT 