The macroeconomic impact of monetization on the Nigerian economy

Abstract

An important question is asked about the relationship between output and monetization of public servants wages and
salaries structure: are variations in public servants wage and salaries plus monetization of fringe benefits transmitted
to increase output, and do these variations in output constitute an important component of variations in
monetization? Total recurrent expenditure is regressed on wages and salaries and fringe benefits of public servants,
monetization and real domestic absorption using General Moment Method (GMM). Again, the cost of governance
equation which induces monetization is regressed on recurrent expenditure, labor and capital variables merged into
one, capital stock and new salary package. The third equation expresses output as a function of cost of governance
taking into account the possible effects of inflation, interest rate and new salary packed which include monetization
booty. The empirical analysis is based on data from the Central Bank of Nigeria statistical Bulletin for the period of
1985 to 2010. The results show that wages and salaries, fringe benefits of public servants and monetization contribute
significantly to recurrent expenditure while the real domestic direct resources away from recurrent expenditure
towards capital expenditure. Again, variations in recurrent expenditures are transmitted; they constitute the dominant
component in the variations of cost of governance. In the output estimates, new salary package which has
monetization as an important component varies in the right direction with output, and the implication is that new
salary package through monetization increases productivity and output.