Abstract

This paper investigates the direction of causality as well as the impact of fiscal deficit on external debt in Nigeria. It goes further to determine whether structural shift actually exists in the pattern and direction of fiscal deficit and debt in the period under review. Econometric analysis such as unit root test, Granger causality test, ordinary least square (OLS) and the Chow break point test were performed on time series data from 1970 to 2007. The results reveal that a structural shift actually exists in the pattern of deficit and debt in Nigeria, but no strict causality or causal relationship actually exists between the variables.

Key words: Fiscal deficit, external debt, growth.