Does the Ricardian Equivalence Hypothesis hold for Nigeria and Ghana?

This study is undertaken to verify if the Ricardian Equivalence Hypothesis (REH)

hold for Nigeria and Ghana using annual time-series data of both developing countries

covering from 1970 to 2013; and taking previous empirical studies as its point of reference

and departure. The broad objective of the study is dissected into the following specific

objectives of the study as thus: to examine the effects of budget deficits on interest rates,

inflation, and economic growth in Nigeria and Ghana within the methodological framework

of Seemingly Unrelated Regression (SUR) model and Two-Stage Least Squares (2SLS).

The study employs Eagle-Granger Cointegration test, Augmented Dickey Fuller (ADF) and

Phillips-Perron (PP) tests in estimating the systems equations. Data sourced from World

Bank, IMF - World Economic Outlook, Central Bank of Nigeria, Bank of Ghana and

others, were analyzed using SUR model with several diagnostic and specification tests to

examine the objectives of the study. From the perspective of this study, the empirical

findings demonstrated that the Ricardian Equivalence Hypothesis (REH) hold for Nigeria

and Ghana thereby validating the proposition of the Ricardian School in both developing

nations.

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