Volume 2 Issue 2
The Effect of Financial Sector Development on the Public Sector of Nigeria
The ever growing fiscal deficit of most developing countries including Nigeria has made fiscal balance become a major task for policy makers. With the worsening fall in the price of crude oil and the concomitant fall in the value of Naira as well as the development in both the money and capital markets has brought the question of the role of financial sector in this regards to the fore front of researchers. This work is situated within the Keynesian framework that assigns roles of economic responsibilities to the public sector. 3 Stage Least Square was used to estimate the two macroeconomic equations. The results showed that development stocks and grants have significant impact on government revenue while treasury bills and exchange rates have significant impact on government expenditure. The simulation results showed that shocks in the financial sector especially the foreign exchange market, affects government revenue more than government expenditure. It is therefore suggested that bilateral trade agreement with countries other than America who is the major trading partner of Nigeria be sought in order to mitigate the need to further devalue Naira against Dollar. This trade agreement will make use of other international currency such as China Lhira. This will help to stabilize naira against dollar as it reduces the demand for dollar yet focusing attention on diversifying the economic base of Nigeria.
Financial Sector Development, Fiscal Blalnce, Public Sector, government Revenue, Government Expenditure, Simulation, Theil index, 3 Stage Least Square, Money Market, Capital Market, Foreign Exchange Market and Market Capitalization