Modeling Expansionary Budget In Kaduna State Using Error Correction Mechanism

Authors: Gimba, V. K. Ph.D; Isah, Husein Adagiri
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This paper analyzes the long run relationship among the major variables (economic, administrative, regional development and social) used in formulating the expansionary budget in the Kaduna State. The expansionary factor captures the rate of changes in budget covering the period from 1988 to 2015. Time series data obtained from the yearly budget as expended by the Kaduna State Ministry of Budget and Economic Planning. The data were tested for stationarity using Augmented Dickey Fuller (ADF) and Philip –Perron (PP) and the result shows that the variables are stationary at first level. Based on this result Johanson –Juselius co-integration test and error correction model were used to check for long run relationship among the major variables. The error correction mechanism revealed that all the variables showed the expected sign, hence constant term displayed that if all the exogenous variables are held constant; 46.41 Per cent of the Kaduna State GDP is from other sources not captured in the model. However, thecoefficient of ECM (32.64 Per cent) indicates fast pace to long run equilibrium adjustment. The implication of this finding is that an increase in any of the variables will bring about a proportionate increase in the general development in the State, especially when it reflects the general needs of the people and it is judiciously implemented. In view of this, the study recommended that more synergy among all the agencies or bodies involved in the formulation of budget to clearly state the strictly budget disciplines and guideline for implementation.