ABSTRACT
The study examined Federal government expenditure and economic growth in Nigeria. Data for the study includes; federal government capital expenditure, federal government recurrent expenditure, gross domestic product, per capita income and inflation rate. Data were extracted from CBN statistical bulletin and were analyzed using multiple regression statistical technique and ordinary least square (OLS). The results revealed that (i) Federal government capital expenditure has positive and significant effect on the real gross domestic product of Nigeria (ii) Federal government recurrent expenditure has a positive but insignificant effect on real gross domestic product of Nigeria (iii) Federal Government Capital expenditure has a positive but insignificant effect on Per Capital Income of Nigeria (iv) Federal Government Capital recurrent has a positive but insignificant effect on Per Capital Income of Nigeria and (v) The relationship between total federal government expenditure and Real Gross Domestic Product is not significantly moderated by the rate of inflation in Nigeria. Based on the findings, the study recommends that Nigerian government should channel fund more on capital expenditure which has positive effect on real gross domestic product, to enhance the economic growth of the country. Also, there is a need for government to streamline and monitor the channels non-interest recurrent expenditure passes through in order to contribute meaningfully to the economic growth of the country. Government should also review their recurrent expenditure especially salaries because of high cost of living in the country currently.
TABLE
OF CONTENTS
Title
page i
Declaration
page ii
Dedication iii
Acknowledgement
iv
Certification
v
Table
of content vi
Abstract x
CHAPTER 1:
INTRODUCTION
1.1 Background to the Study 1
1.2
Statement of the Problem 4
1.3 Objectives of the Study 5
1.4.
Research Questions 6
1.5.
Research Hypotheses 6
1.6.
Significance of the Study 7
1.7. Scope of the Study 7
CHAPTER 2: REVIEW
OF RELATED LITERATURE
2.1.1
The concept of government expenditure 8
2.1.2
Economic growth 12
2.1.3 Economic development in Nigeria 13
2.1.4 Infrastructure as an economic growth
indicator 17
2.1.5 Human capital as an economic growth
indicator 21
2.1.6
Gross domestic product (GDP) as an economic growth indicator 24
2.1.7 Per capita income as an economic growth
indicator 24
2.1.8 Government expenditure and
economic growth 25
2.1.9 Capital expenditures and
economic growth 28
2.1.10 Recurrent expenditures and
economic growth 30
2.1.11 Impact of government expenditure
on inflation 33
2.1.12 Government expenditure on the education
sector 34
2.1.13
Government efforts on agricultural growth in Nigeria 37
2.1.14 Investment on health and economic growth 38
2.1.15 Government expenditure size and
its effects on economic growth 40
2.2
Theoretical review 42
2.2.1
The Wagner’s theory of increasing state activities 42
2.2.2
Economic growth theory 43
2.2.3 The
Keynesian theory 43
2.3
Empirical review 44
2.4
Summary of empirical review 56
2.5 Gap
in the literature 62
CHAPTER 3: METHODOLOGY
3.1
Research Design 63
3.2
Area of the Study 63
3.3
Sources of Data 63
3.4
Method of Data Analysis 63
3.5 Model Specification 63
3.6
Description of Variable 65
CHAPTER 4: DATA
PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
4.1: Data Presentation 67
4.2 Pre-estimation Diagnostics 67
4.2.1 Descriptive analysis 67
4.2.2 Unit root test 68
4.3 Model Estimation Based on OLS Technique
Specified for the Study 69
4.3.1
Effect of federal government capital and recurrent expenditures on real
gross domestic product 69
4.3.2 Effect of federal government
expenditure on per capita income 73
4.3.3: Moderation
effect of inflation rate on the relationship between
total government expenditure and RGDP in Nigeria 76
4.4 Hypotheses Testing 77
4.4.1 Testing for the effect of federal government
capital expenditure on real gross
domestic product of Nigeria 77
4.4.2 Testing for the effect of federal government recurrent
expenditure on real gross
domestic product of Nigeria 77
4.4.3 Testing for the effect of federal government capital expenditure
on per
capital income in Nigeria. 77
4.4.4 Testing for the effect of federal government recurrent
expenditure on per
capital income in Nigeria. 78
4.4.5 Testing for the moderation/interaction effect of inflation rate
on the relationship
between total federal expenditure and
economic growth in Nigeria. 78
4.5 Discussion
of Findings 78
CHAPTER 5: SUMMARY OF
FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1
Summary of Findings 82
5.2
Conclusion 82
5.3
Recommendations 82
5.4 Contribution to Knowledge 83
5.5 Areas for Further Research 84
REFERENCES 85
APPENDICES
LIST OF TABLES
4.1: Descriptive statistics 67
4. 2 Descriptive statistics of normally distributed
series 68
4.3 Zivot Andrews unit root test 69
4.4: Diagnostic
test result on RGDP model series 70
4.5: Post
estimation test on adjusted RGDP model 71
4.6: Effect of
capital and recurrent expenditures on real gross domestic
product 72
4.7: Diagnostic
test result on PCI model series 73
4.8: Post estimation test on adjusted PCI model 74
4.9: Effect of capital and recurrent expenditures on
per capita income 75
4.10:
Results of moderation/interaction effect of inflation rate on the
relationship
between government expenditure and RGDP. 76
CHAPTER
1
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
In
almost all economies today, the role of government occupies a position of
paramount importance. One reason for this is that it directs the process of
achieving a country’s macroeconomic objectives such as full employment, economic
growth and development, price stability and poverty reduction. Another is the
perceived failure of the market system to efficiently and equitably allocate
economic resources for social and infrastructural development (Agbonkhese &
Asekhome, 2014). Government basically performs two functions: protection and
provision of public goods. Protection involves the enforcement of the rule of
law and property rights. These functions helps to minimize risk, protect li fe
and property and the nation from both internal and external aggression as well
as provide roads, schools, electricity and communication to name a few.
The
expenditure of government has been on the geometric increase through the
interactions with and activities of government agencies, departments and
ministries. This continuous increase in the volume of government expenditure
has been the experience in Nigeria if not very common in all countries world
over due to the continuous state/federal expansion activities. The development
of the state activities since the 20th century in areas including industrial
innovations, public health, education, commercial activities, etc have
accelerated government expenditure increases to a large extent. According to Abu
and Abdullah (2010), public expenditure is assumed to be the most powerful
economic factor of all modern societies. The form and pattern of the output
growth of any economy is determined by the structure and size of its public
expenditure. (Akpan, 2012).
The
Nigerian public expenditure structure can be segmented into recurrent
expenditure and capital expenditure. The components of the recurrent
expenditure include expenditure on administration. (Interest on loans and
maintenance, salaries and wages) while capital expenditure captures government projects
on the generation of the electricity, education, telecommunication, airports,
roads, and so on. The provision of public infrastructural facilities has been
one of the fundamental bases for public spending. Providing and maintaining
these infrastructural amenities cost huge amount finance. Hence, investment on
infrastructures and productive activities spending is expected to positively
contribute to the growth of the economy whereas spending on consumption by the
government retard growth. It is argued that the country will benefit socially
and economically from government investment (spending) on health, roads,
education, agriculture, etc. Among the world of scholars, the issue of impact
of public expenditure on the growth of the economy has continued to generate
debate (Abu & Abdullahi, 2010) Governments have been found to be involved
in two basic functions, that is, the protection functions (security) and the
provision function. Government protection functions include the establishment
of the rule of law and property rights enforcement. With thin function, the
security of lives and properties are offered, the criminality risk is
minimized, and the country is secured from external aggression. The provision
functions centres on the provision of public goods and services to include
power, road, health and education. For instance, the expenditure of government
on education and health engenders labour productivity and increases national
output growth. Similarly, infrastructural expenditure on power, roads, communication,
etc reduces the costs of production, facilitates the development of the private
sector and industrial profitability, hence, fostering the growth of the economy
(Nurudeen & Usman, 2010).
Nigeria
has over the years invested a lot of resources both human and material
resources with the aim of attaining a sustainable level of economic growth in
the level of output. Improvements in the quality of the socio-economic
institutions, structure and composition of an economy and overall welfare of
their residents have led to the incurrence of huge expenditures aimed at
improving the infrastructure, social welfare and empowerment packages,
employment generation, as well the creation of an enabling environment so as to
ensure the growth of private investment. Such efforts are in recognition of the
part played by government spending and determining economic activities level
and thus the general welfare of the residents of a country. In Nigeria, such
efforts led to an increase in government expenditure from 903.90 and 1,463.60
million Naira in 1970 and 1972, to 191,228.90 and 248,768.10 million Naira in
1993 and 1995, and to 1,907,580.50 and2, 237,900.00 million Naira in 2010 and
2011 (Central Bank of Nigeria, 2013). Also
for example available statistics in Nigeria from CBN (2016) show that federal
government expenditure has continued to rise over the years. This is due to
receipts from oil and non-oil revenue as well as an increasing demand for
public goods such as roads, electricity, education, health and security.
Federal government expenditure which stood at N11.42 billion in 1981 increased
to N1,018.00 billion in 2001 and N4,194.85 billion in 2010 from which it rose
to N4,712.06b, N4,605.39b and N5,185.32b in 2011, 2012 and 2013. In 2014
however, the federal government expenditure fell to N4, 587.39b before rising
to N4, 988.86 b and N5, 160.74b in 2015 and 2016 respectively. These trends
appear to have been fueled by inflationary pressure.
However,
despite the loftiness of the Nigerian government expenditures since the country
obtained its political independence from Britain, economic growth appears
elusive. The continuous increases in the expenditure of the Nigerian government
have not resulted in the expected or assumed substantial growt h and
development, hence, the country is categorized among the world’s poorest
countries with very high cost of living among its populace. Added to this is
the state of the country`s infrastructure which is generally in a dilapidated
state (especially roads and power supply). Many industries have collapsed as a
result, including the overwhelming unemployment level and most giant projects
abandoned. Moreover, most macroeconomic measures such as exchange rate, import
obligation, national savings, and balance of payments have shown Nigeria in the
last couple of years as not being doing well. Questions also arose with respect
to the composition of government expenditure, which in Nigeria has generally
been skewed in favour of activities which contribute very little to the welfare
of its citizens.
It
is however expected that public expenditure should play a significant role in
the growth of an economy because no nation on earth achieved a certain level of
development without government intervention. As such, government expenditure is
the pivot of economic development. This explains why investigations into the
relationship between government expenditure and economic growth has continued
to generate increase research interests among scholars both at theoretical and
empirical literature (Sevitenyi, 2015)
According
to Eze and Ani (2016), the effectiveness of government expenditure will however
depend on how some limiting factors are handled in relation to the various
sectional budgets and the master budgets usually when plans are being
formulated. The claim that increasing government expenditure promotes economic
growth, instead they assert that higher government expenditure may slowdown
overall performance of the economy. Investigations that considered the limiting
impact of inflation in the relation between government expenditure and economic
growth is very scanty and need to be explored in Nigeria.
It
is upon this background that this study included in its focus of enquiry, federal
government expenditure and economic growth in Nigeria using data covering from1981-2020.
1.2 STATEMENT OF THE PROBLEM
The
whole essence of rising government expenditure is to improve on economic growth
and the standard of living of the people, to enable the governed realized their
full potential through quality education, food, shelter, nutrition, transport,
security and so on. Standard of living refers to the level of wealth, comfort,
material goods necessities made available to any social-economic class in a
geographical area, usually, a country. According to Adwara, & Oloni (2017),
the determinants of the standard of living include factors like school and
hospital, roads and bridges, water supply, electricity, wages and salaries and
all other capital projects and recurrent expenditure of the government. The
benefit that individual derives from all the expenditure is measured by per
capita income (PCI), which, captures the standard of living. Every year Nigeria
spends a huge amount of money on both capital expenditure and recurrent
expenditure and yet the gross domestic product of the country keeps declining
on yearly basis. Consequently, people are living in abject poverty. Due to the
high rise in inflation, civil servants cannot afford for their living. The government
of the country has refused to do something concerning the salary of their
workers. Most of the government workers cannot pay their bills, some cannot
even give their children quality education due to the inflation rate in the country. Yet the government is allocating trillions of
naira every year. Then the question is what government is doing with the money
being allocated every year for both capital and recurrent expenditure. One can
categorically state that government expenditure has not reflected to economic
growth of Nigeria.
1.3
OBJECTIVES OF THE STUDY
The main objective of the study is to
examine the effect of federal government expenditure on economic growth. The
specific objectives of the study are to:
i.
determine the effect of federal
government capital expenditure on real gross domestic product in Nigeria.
ii.
evaluate the effect of
federal government recurrent expenditure on real gross domestic product in
Nigeria.
iii.
ascertain the effect of federal
government capital expenditure on the per capital income in Nigeria.
iv.
evaluate the effect of
federal government recurrent expenditure on the per capital income in Nigeria.
v.
determine the interaction
effect of inflation on the relationship between total federal government expenditure
and economic growth in Nigeria.
1.4. RESEARCH QUESTIONS
The
following research questions guided the study
1. What
effect has federal government capital expenditure on real gross domestic
product of Nigeria?
2. What
effect has federal government recurrent expenditure on real gross domestic
product of Nigeria?
3. What
is the effect of federal government capital expenditure on the per capita
income in Nigeria?
4. What
is the effect of federal government recurrent expenditure on the per capita
income in Nigeria?
5. How
does inflation rate moderate the
relationship between government expenditure and economic growth in Nigeria
1.5. RESEARCH HYPOTHESES
The following hypotheses was investigated;
H01: Federal government
capital expenditure has no significant effect on real gross domestic product in
Nigeria.
H02: The
effect of Federal government recurrent
expenditure on real gross domestic product in Nigeria is not significant.
H03: Federal
Government Capital expenditure does not have any significant effect on per
capita income in Nigeria.
H04:
The effect of federal government recurrent expenditure on per capita Income in
Nigeria is not significant.
H05:
Inflation rate does not have any significant effect on the relationship between
total federal government expenditure and economic growth in Nigeria.
1.6. SIGNIFICANCE OF THE
STUDY
The study will be of immense benefit
to the following group;
Government:
The findings and recommendations of the
study will assist government in implementing policies that will help in proper
allocation of revenue to the agricultural, manufacturing, education and health
sector of the economy
Policy
makers: Policy makers will utilize the result of
the study in formulating policies that will help the country in proper
allocation of revenue to agricultural sector of the economy.
The
economic planner: Economic planner will
utilize the result of the study in restoring the safety and soundness of the
economy of Nigeria. Far-reaching negative effects on the national economic
well-being caused by poor economic policies of the present administration,
corruption, misappropriation of money allocated to the major sectors in Nigeria will be minimized by adopting the
recommendations of the study that will be made by the researcher.
Researchers and Students: Researchers
and students interested in a similar field of study in future will find this
work useful conceptual guide and reference material.
1.7.
SCOPE OF THE STUDY
The content scope is federal government
expenditure on economic growth. Government expenditure refers to the purchase
of goods and services, which include public consumption and investment, and
transfer payments consisting of income transfers (pensions, social benefits)
and capital transfer. The time scope covered from 1981 to 2020. The choice of
this period by the researcher was based on the availability of data under this
period. The geographical scope is Nigeria.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment