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This research work tries to examine the impact of government expenditure on economic growth in Nigeria from 1980-2015, using gross domestic product (GDP) as the dependent variable, capital expenditure, recurrent expenditure and inflation as independent variables. This work was done using ordinary least square (OLS), regression technique with the aid of computer software, for a 1988-2015 time series data. Engel and Granger two step method was also employed in this research work. This study found that capital expenditure has a positive relationship with economic growth in Nigeria, this relationship is in conformity with economic theory. The ADF unit root also showed that the variables in this research work are not stationary at first difference. The study recommends that government should ensure and encourage the education and health sectors and also provide the basic social amenities for the general public through increased funding and as well as ensuring that these resources are properly managed and used for the development and provision of this services to help improve the standard of living of people.
Government expenditure or government spending includes all government consumption, investment and transfer payment. It also includes the provision of public social amenities like infrastructure, health sector and educational sector and also the provision of public goods to directly satisfy the individual or collective needs of the society. In almost all economies today, government intervention in undertaking fundamental roles of allocation, stabilization, distribution and regulation has helped put the economy in a good shape, especially where or when market proves inefficient or its outcome is socially unacceptable. Government also intervenes, particularly in developing economies to achieve macro economics objectives such as economic growth and development, price stability and poverty reduction (AESS Publication, 2011).
It is a fact that no society has ever attained a high level of economic affluence without a government. Where government does not exist, anarchy reigned and little wealth was accumulated by productive economic activities. Economic growth represents the expansion of a country’s GDP or output. Growth here means an increase in economic activities.Todaro (1995) defined a country’s economic growth as a long term rise in capacity to supply increasing diverse economic goods to the society; this growth capacity is based on advancing technology and the institutional and ideological adjustment which is demand.
Over the past decades, the public sector spending has been increasing in geometric termthrough government various activities and interactions with its Ministries, Departments and Agencies (MDA’s), (Niloy et al., 2003). Although, the general view is that public expenditure either recurrent or capitalexpenditure, notably on social and economic infrastructure can be growth-enhancing although the financingof such expenditure to provide essential infrastructural facilities-including transport, electricity,telecommunications, water and sanitation, waste disposal, education and health-can be growth-retarding (forexample, the negative effect associated with taxation and excessive debt). The size and structure of publicexpenditure will determine the pattern and form of growth in output of the economy (Taiwo and Abayomi, 2011).
The structure ofNigerian public expenditure can broadly be categorized into capital and recurrent expenditure. The recurrentexpenditure are government expenses on administration such as wages, salaries, interest on loans,maintenance etc., whereas expenses on capital projects like roads, airports, education, telecommunication,electricity generation etc., are referred to as capital expenditure. One of the main purposes of governmentspending is to provide infrastructural facilities (AESS Publication, 2011).
Nurudeen and Usman (2010) added that, in Nigeria, government expenditure has continued to rise due to the huge receipts from production and sales of crudeoil, and the increased demand for public (utilities) goods like roads, communication, power, education and health.Besides, there is increasing need to provide both internal and external security for the people and the nation. Availablestatistics, according to Nurudeen and Usman (2010) shows that total government expenditure (capital and recurrent) and its components have continued to rise inthe last three decades. For instance, government total recurrent expenditure increased from N3, 819.20 million in 1977to N4, 805.20 million in 1980 and further to N36, 219.60 million in 1990. Recurrent expenditure was N461, 600.00million and N1, 589,270.00 million in 2000 and 2007.Furthermore, the various components of capital expenditure (that is, defense,agriculture, transport and communication, education and health) also show a rising trend between 1980 and 2014 (Anyato, 1996).
The effect of government spending on economic growth is still an unresolved issue theoretically as well as empirically. Although the theoretical positions on the subject are quite diverse, the conventional wisdom isthat a large government spending is a source of economic instability or stagnation. Empirical research,however, does not conclusively support the conventional wisdom. A few studies report positive andsignificant relation between government spending and economic growth while several others findsignificantly negative or no relation between an increase in government spending and growth in real output (Todaro, 1995).In the light of the above, this study intends to examine the impact of government expenditure on economic growth of Nigeria.
In the last decade, Nigerian economy has metamorphosed from the level of million naira to billion nairaand postulating to trillion naira on the expenditure side of the budget. This will not be surprising if theeconomy is experiencing surplus or equilibrium on the records of balance of payment. Better still, if thereare infrastructures to improve commerce with the system or social amenities to raise the welfare of averagecitizen of the economy. All these are not there, yet we always have a very high estimated expenditure. Thisindicates that something is definitely wrong either with the way government expands budget or with theways and manners it has always been computed (Anyanwu, 2003).
Unfortunately, the rising government expenditure has not translated to meaningful growth and development, as Nigeria ranks among the poorest countries in the world. In addition, many Nigerians have continued to wallow in abject poverty, while more than 50 percent live on less than US$1 per day. Coupled with this, is dilapidated infrastructure (especially roads and power supply) that has led to the collapse of many industries, including high level of unemployment.Moreover, macroeconomic indicators like balance of payments, obligations, inflation rate, exchange rate, and national savings reveal that Nigeria has not fared well in the last couple of years (Nurudeen and Usman, 2010).
The broad objective of the study is to examine the impact of government expenditure and economic growth of Nigeria.
The specific objectives are:
1.4 RESEARCH QUESTION
Against this backdrop, the following research questions are raised:
The following hypotheses will be tested in the course of this study.
Ho: There is no significant relationship between government capital expenditure and economic growth of Nigeria.
Ho: There is no significant relationship between government expenditure and economic growth of Nigeria.
Ho: There is no significant relationship between government recurrent expenditure and economic growth of Nigeria.
It is expected that this study would consolidate existing literature on the issues surrounding the relationship between government expenditure and economic growth. The study would also facilitate the examination of the effects of government expenditure and economic growth in Nigeria and thus boosting the empirical evidence from Nigeria.
Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies and policy simulation with respect to the selected variables examined in the study.
The result of the study would be of benefits to education analysts, and institutions in examining the effectiveness of government expenditure and economic growth. It will also be useful in stimulating public discourse given the dearth of empirical researchers in this area from emerging economies like Nigeria.
Finally, it would also add to the available literature on the areas of study while also providing a platform for other researchers who may want to further this study.
1.7 SCOPE OF THE STUDY
This study is undertaken to examine the impact of government expenditure on economic growth. In term of time series, a period of thirty-three years is used (i.e. 1980 to 2015) as means of assessing the impact of government expenditure on the growth of Nigerian economy. It is hoped that this will help to achieve the stated objective of the study.
1.8 ORGANISATION OF THE STUDY
CHAPTER ONE: Chapter one includes an introduction which gives an insight on what this study in all about (The impact of government expenditure on economic growth in Nigeria), the background of the study, statement of the problem, objective of the study, research questions, research hypothesis, significant of the study and the scope of the study.
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