Determinates of Budget Deficit in Selected East and West African Countries: A Dynamic Panel Data Approach

Abstract

Budget deficits imitate rank of monetary health in which public outflow exceed public inflow. In this study the determinates of budget deficit analyzed in two regions east and west African cross countries from the year of 2000 to 2017 using a dynamic panel data approach. The data is obtained from WDI, IMF database and annual reports of these institutions. The study employed least square dummy variable fixed effect estimations technique of the model and It also investigate interaction variable of debt regressions result to know whether the source of debt in the regions of countries are same or not. The result reveals that higher number of unemployment, broad money supply and high amount of total population growth are associated with a significant effect on budget deficit. While real gross domestic product, debt and inflations rate are showed insignificant effect on budget deficit in the analysis of the regions. The study also including time invariant variable in the estimation result that is country dummy in the study implied that, as comparing to Ethiopia the amount of budget deficit in Tanzania, Senegal and Cote Divore are higher amount of public deficit implied by country dummy analysis of this study. The study indicates as policy implications reducing higher level of unemployment, broad money supply and populations’ growth rate are technically reducing budget deficit of the regions and knowing the optimum amount of budget that raised by the policy maker to the economy is crucial to the regions. Finally on the basis of this study, it makes a number of recommendations to reduce budget deficits in the regions.

Keywords:budget, determinates, panel, fixed, LSDV, east and West Africa

DOI: 10.7176/JESD/13-3-01

Publication date: February 28^th 2022