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

Table 4.2: Correlation Matrix Result EDT FSD CAD EXR INT ISG EDT 1.00 FSD -0.59 1.00 CAD -0.01 0.43 1.00 EXR -0.49 0.25 0.12 1.00 INT -0.09 0.05 0.20 0.38 1.00 ISG -0.06 -0.22 -0.62 -0.11 -0.08 1.00 Source: Author’s Computation (2022) The study proceeded to examine the level of stationarity of the variables because most macroeconomic variables have been found to be non- stationary at level (Engle & Granger, 1987). Table 4.3 shows that external debt (EDT) and exchange rate (EXR) are stationary at first difference, while current account deficit/balance (CAD), fiscal deficit/balance (FSD), real interest rate (INT), and investment-savings gap (ISG) are stationary at level. This is because the absolute values of the computed ADF test statistics are greater than the absolute value of the tabulated ADF critical values of the variable at 5% level of significance. Table 4.3: Augmented Dickey Fuller Test Results Variable Level Test Statistics Critical Value @ 5% Prob. Value 1 st Diff.Test Statistics Critical Value @5% Prob. Value Integration Rank CAD -3.18 -2.94 0.03** - - - I(0) EDT -1.44 -2.94 0.55 -4.48 -2.94 0.00*** I(1) EXR 1.40 -2.94 0.99 -4.27 -2.94 0.00*** I(1) FSD -2.99 -2.94 0.05** - - - I(0) INT -7.25 -2.94 0.00*** - - - I(0) ISG -4.58 -2.94 0.00*** - - - I(0) Note: ** and *** represent 5% and 1% significance levels respectively Source: Author’s Computation (2022) Then the study proceeded to ascertain the directional flow between the variables. Table 4.4 presents the result of the granger causality test which captured objective two. Table 4.4 shows that fiscal deficit which is the key independent variable is a significant predictor of changes in Nigeria’s external debt as well as interest rate. The fact that there is no causality between FSD and the independent variables - ISG, EXR suggests that ISG and EXR have strong exogeneity in the external debt model. Table 4.4: Granger Causality Test Results Null Hypothesis F-Statistics Prob. Value Remark FSD to EDT EDT to FSD 4.01 1.14 0.03** 0.33 Unidirectional causal flow from FSD to EDT CAD to EDT EDT to CAD 4.79 0.11 0.02** 0.90 Unidirectional causal flow from CAD to EDT ISG to EDT EDT to ISG 1.55 0.30 0.23 0.75 No causality INT to EDT EDT to INT 0.57 3.13 0.57 0.06* Unidirectional causal flow from EDT to INT Volume XXII Issue VII Version I 40 ( ) Global Journal of Human Social Science - Year 2022 © 2022 Global Journals E Implication of Fiscal Deficit Financing on External Debt Sustainability in Nigeria