The Impact of Fiscal Federalism on Economic Growth in Nigeria: Evidence from Time Series Analysis (1985–2024)

Abstract

This study examines the impact of fiscal federalism on economic growth in Nigeria over a 40-year period from 1985 to 2024. Using annual time-series data sourced from the Central Bank of Nigeria Statistical Bulletin, economic growth is proxied by real GDP per capita, while fiscal federalism is measured via three indicators: revenue decentralization (RDC), expenditure decentralization (EXDC), and their simultaneous decentralization (REXDC). The study employs the Augmented Dickey Fuller unit root test, Johansen cointegration technique, an Error Correction Model (ECM), and Granger causality tests. The results confirm a stable long-run equilibrium relationship between fiscal federalism and economic growth. Revenue decentralization exerts a positive and statistically significant effect on growth, whereas expenditure decentralization negatively affects it. Simultaneous decentralization shows a complex, context-dependent effect. Granger causality tests reveal a bidirectional causal relationship between simultaneous decentralization and economic growth, suggesting feedback effects. The findings accentuate that decentralization's efficacy is contingent on institutional quality, highlighting the importance of revenue autonomy, strengthened subnational institutional capacity, and improved intergovernmental fiscal coordination for promoting sustainable economic growth in Nigeria.