Economic downturn and federal practice in Nigeria

Abstract

The economic situation in any federal system is crucial to its continued existence. The Nigerian economic system is at a downturn due to its centralised structure; each constituent unit is finding it difficult to perform its responsibilities. This study investigates the impacts of the recent economic downturn on the practice of fiscal federalism in Nigeria. The study used quarterly data (2013Q1-2017Q4) on the total federal allocation of revenue to federal, state and local government and the real GDP growth during recession times. The Augmented Dickey Fuller (ADF) unit root test and Autoregressive Impulse Response Function (IRF) were employed. Results revealed an insignificant positive response of real GDP growth during the economic downturn to ‘shock’ in the federal practice of revenue allocation. The study identifies an over-dependence on oil revenue and federal allocation, an absence of decentralisation, overwhelming levels of corruption, rent-seeking leaders and politicisation of fiscal federalism, amongst others, as the core issues hindering the practice of fiscal federalism in Nigeria. It concludes that for there to be true fiscal federalism, Nigeria should encourage the principle of derivation in her revenue allocation formula and effective decentralisation, as well as economic diversification for effective governance.

To cite: Idowu, O.O. & Bamidele, S. (2018). Economic downturn and federal practice in Nigeria. Journal of Management & Administration (2018/2), 61–83. https://hdl.handle.net/10520/EJC-128daab99e