EFFECT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA

                                                                 ABSTRACT

This study examined the effect of Government Expenditure on Economic Growth of Nigeria for the period 2002 to 2016. Time series data for the fifteen (15) years period was sourced from Central Bank of Nigeria Statistical Bulletin and Ordinary Least Square (OLS) multiply regression technique was used to estimate the parameter. Real Gross Domestic Product, proxy for economic growth is adopted as the dependent variable while Total Recurrent Expenditure and Total Capital Expenditure constitute the independent variables. The result of the study showed that the Government Capital Expenditure has a positive and insignificant impact on the economic growth of Nigeria for the period under study, while recurrent expenditure was positive and significant. In view of this, it was recommended amongst others that government should allocate more of its resources to the priority sectors of the economy such as agriculture and industry as well as to infrastructure development, in order to encourage growth of the economy.    

TABLE OF CONTENT

Cover page                                                                                                         i

Title page                                                                                                            ii

Declaration                                                                                               iii

Dedication                                                                                                                    iv      

Certification                                                                                             v

Abstract                                                                                                              vi

Table of content

CHAPTER ONE                                                                                                       

INTRODUCTION

1.1       BACKGROUND TO THE STUDY                                                            1 

1.2       STATEMENT OF THE PROBLEM                                                           3

1.2       OBJECTIVE OF THE STUDY                                                          4

1:3.      RESEARCH QUESTION                                                                   4

1.4       RESEARCH HYPOTHESES                                                                       4

1.5       SCOPE OF THE STUDY                                                                    5

1.6       SIGNIFICANCE OF THE STUDY                                                              5

CHAPTER TWO

REVIEW OF RELATED LITERATURE                                                    6

2.1 Conceptual framework                                                                             6

2.1.1Concept of government expendituree                                          6

2.1.2 TYPE OF GOVERNMENT EXPENDITURE                                                7

2.1.3 HOW GOVERNMET EXPENDITURE IS AFFECTED BY DIFFERENT FACTOR                                                                                                         8

2:1.4   OVERVIEW OF ECONOMY GROWTH                                                    9

2.1.5 SOME ESSENTIAL CONDITIONS FOR STRONG ECONOMIC GROWTH                                                                                                                          10

2.2 THEORETICAL FRAMEWORK                                                                      13

2.2.1 Musgrave theory of public expenditure                                                13

2:2:2 Endogenous growth model                                                                    13

2.2.3 Economic Growth Theories                                                                    14

2.3. Empirical Review                                                                                      15

CHAPTER THERE

RESEARCH METHODOLOGY                                                                   19

3:1. Research Design                                                                                        19.

3:2 Area of study                                                                                              19

3:2 Area of study                                                                                              20

3:4. Model   specification                                                                                 20

CHAPTER FOUR

PRESENTATION OF DATA, ANALYSIS AND DISCUSSION                           22

4.1     Presentation of Data                                                                              22

4.2     Data Analysis and Discussion of Results                                             22

4.2     Descriptive Statistics                                                                              23

4.3     Regression Analysis                                                                               24

4.3.1  Discussion of Findings and Hypotheses Testing                                 25

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS                                                                                                                                    26

5.1     Summary of Findings                                                                            26

5.2     Conclusion                                                                                              26

5.3     Recommendations                                                                                 26

APPENDIX                                                                                                                 27

REFERENCES                                                                                                 30

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY   

Over the past decades, the public sector spending has been increasing in geometric term through government various activities & interactions with its Ministries, Departments & Agencies (MDA’s), (Niloy et al. 2003). Although, the general view is that public expenditure either recurrent or capital expenditure, notably on social & economic infrastructure can be growth-enhancing although the financing of such expenditure to provide essential infrastructural facilities-including transport, electricity, telecommunications, water & sanitation, waste disposal, education & health-can be growth-retarding (for example, the negative effect associated with taxation & excessive debt). The size & structure of public expenditure will determine the pattern & form of growth in output of the economy (Taiwo, & Abayomi, 2011).

 The structure of Nigerian public expenditure can broadly be categorized into capital & recurrent expenditure. The recurrent expenditure 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 government spending is to provide infrastructural facilities (Taiwo & Abayomi, 2011).

Nurudeen & Usman (2010), added that, in Nigeria, government expenditure has continued to rise due to the huge receipts from production & sales of crude oil, & the increased dem& for public (utilities) goods like roads, communication, power, education & health. Besides, there is increasing need to provide both internal & external security for the people & the nation. Available statistics, according to Nurudeen & Usman (2010) show that total government expenditure (capital & recurrent) & its components have continued to rise in the last three decades. For instance, government total recurrent expenditure increased from N3, 819.20 million in 1977 to N4, 805.20 million in 1980 & further to N36, 219.60 million in 1990. Recurrent expenditure was N461, 600.00 million & N1, 589,270.00 million in 2000 & 2007, respectively. In the same manner, composition of government recurrent expenditure shows that expenditure on defense, internal security, education, health, agriculture, construction, & transport & communication increased during the period under review. Moreover, government capital expenditure rose from N5,004.60 million in 1977 to N10, 163.40 million in 1980 & further to N24,048.60 million in 1990. The value of capital expenditure stood at N239, 450.90 million & N759, 323.00 million in 2000 & 2007, respectively. Furthermore, the various components of capital expenditure (that is, defense, agriculture, transport & communication, education & health) also show a rising trend between 2002-2016.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 is that 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 & significant relation between government spending & economic growth while several others find significantly negative or no relation between an increase in government spending & growth in real output.

In the light of the above, this study intends to examine the impact of government expenditure on economic growth of Nigeria.

1.2       STATEMENT OF THE PROBLEM

In the last decade, Nigerian economy has metamorphosed from the level of million naira to billion naira & postulating to trillion naira on the expenditure side of the budget. The effect of this expenditure are largely unnoticeable on the citizenry (Muritola 2011).Empirically,while a positive & significant relationship between government spending & economic growth have been established, there are much significant negative or no impact of an increase in government expenditure & economic growth in Nigeria.

Unfortunately, the rising government expenditure has not translated to meaningful growth & 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$2 per day. Couple with this, is dilapidated infrastructure (especially roads & power supply) that has led to the collapse of many industries, including high level of unemployment (Nurudeen & Usman, 2010).Among other identified problems in this study include ;the level of technology is very low & as a result primitive technology is till date, being used in agriculture which brings about low productivity, high degree of unemployment in the country, as the functional firm are not commensurate with the increasing population, basic infrastructures such as good road, health faculties are lacking, power  is epileptic & highly unreliable, income per head is low, savings & investment are also low in Nigeria.

1:2     OBJECTIVES OF THE STUDY

The broad objective of the study is to examine the effect of government expenditure & economic growth of Nigeria.

The specific objectives are:

1.           To examine the effect of total  capital expenditure  on economic growth in Nigeria.

2.           To examine the effect of  total recurrent expenditure on economic growth in Nigeria.

1:3.      RESEARCH QUESTION

In other to achieve the objective of the study the following research questions were raised:

1.          To what extend does  total capital expenditure have effect on economic growth in Nigeria.

2.               To what extend does total recurrent expenditure have effect on economic growth in Nigeria.

1.4       RESEARCH HYPOTHESES

In order to adequately evaluate the impact of government expenditure on the economic growth of Nigeria, the null hypotheses are used as follow:

Hypothesis 1

H_o:       There is no significant relationship between total capital expenditure & economic growth of Nigeria

H_o2:      There is no significant relationship between total recurrent expenditure & economic growth of Nigeria.

1.5       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 fourteen years is used (i.e. 2002 to 2016) as means of assessing the effect of government expenditure on the growth of Nigerian economy. It is hoped that this will help to achieve the stated objective of the study. 

1.6       SIGNIFICANCE OF THE STUDY

It is expected that this study would consolidate existing literature on the issues surrounding the relationship between government expenditure & economic growth. The study would also facilitate the examination of the effects of government expenditure & economic growth in Nigeria & thus boosting the empirical evidence from Nigeria.

Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers & regulatory bodies & policy simulation with respect to the selected variables examined in the study.

The result of the study would be of benefits to the following=

Education analysts, & Institutions in examining the effectiveness of government expenditure & economic growth.

It will also be useful in stimulating public discourse given the death of empirical researchers in this areas 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.

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