Government
Expenditure no doubt is an important instrument for a government to control the
economy of a nation Economists have been well aware of the effects in promoting
economic growth Anyway, the general view is that government expenditure notably
on social and economic infrastructure can be growth enhancing although the
financing of such expenditure to provide essential infrastructural facilities
including transport, electricity, telecommunication, water and sanitation,
waste disposal, education and health can be growth retarding (Olukayode, 2009).
Nowadays, the
relationship between government expenditure and economic growth has continues
to generate sense or controversies among scholars in economic literature
(lnuwa, 2012) According to him, the nature of the impact of government
expenditure on economic growth is in conclusion, and from the view point of the
student researcher is still not incontrovertible As a matter of fact, while
some author or researchers believed that the impact of government expenditure
on economic growth is negative or non-significant (Tuban, 2010). Others
believed that the impact is positive and significant ‘Alexiou. 2009).
The structure of Nigeria government expenditure can
bawdily be categorized into capital and recurrent expenditure (Muritala 2011).
The recurrent expenditure is basically government expenses on administration
such as wages, salaries, interest on loans, maintenance cost. etc However, the
expenses on capital project like roads, airports, education, telecommunication,
Electricity, generator, etc are generally referred to as capital expenditure
(Muritala. 2011).
Ironically,
the effect of government spending in Nigeria in relation to the economic
growth is still a puzzle and an unresolved issue indeed theoretically. it is an
unresolved issue Although the theoretical positions on the subject are quite
diverse, the conventional wisdom is that or spending is a source of economic
instability or stagnation Empirical research does not conclusive support the
conventional wisdom, a few studies report position and significant negative
relationship between government spending and economic growth while others find
significantly negative or no relation between an increase in government
spending and growth in real output. It is against this backdrop, the study is
undertaken to empirically evaluate the impact of government expenditure on
economic growth in Nigeria.
Nigeria is a developing country
that has experienced dynamic changes in the trend of government expenditure
policy over years. These periodic changes in the administration of fiscal
policy are largely reflected from the way governance has been changing hands
between civilian and the military. Also trend of expenditure has been changing
as the fiscal unit kept changing in the economic system. Nigeria’s
economy is characterized by a market economy with government assuming the role
of creating enabling environment within which business can flourish and
contribute to the development of the country’s economy. Therefore, the primary
role of government is to provide extension services and infrastructural
facilities, which stimulates investment and augment the productive capacity of
the economy.
Over the past
decades, government expenditure has been increasing in geometric terms through
governments’ various activities and interactions with its Ministries,
Departments and Agencies (MDA’s), (Niloy 2003). Although, the general view is
that government expenditure either recurrent or capital expenditure, notably on
social and economic infrastructure can be growth-enhancing although the
financing of such expenditure to provide essential infrastructural
facilities-including transport, electricity, telecommunications, water and
sanitation, waste disposal, education and health-can be growth-retarding (for
example, the negative effect associated with taxation and excessive debt)
The size and
structure of government expenditure will determine the pattern and form of
growth in output of the economy. The structure of Nigerian government
expenditure can broadly be categorized into capital and 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 transport, roads, airports, education, telecommunication,
electricity generation etc., are referred to as capital expenditure. One of the
main purposes of public spending is to provide infrastructural facilities and
the maintenance of these facilities requires a substantial amount of spending.
The relationship between government expenditure on infrastructure and economic
growth tends to be an important analysis in developing countries, most of which
have experienced increasing levels of government expenditure overtime (World
Development Report, 1994).
According to Oni and Okanlawon
(2010), Nigeria’s
economy suggests that transportation costs form significant proportion of the
final price of most goods such as agricultural goods, manufactured goods, and
mining products. They observed that on the average, transport accounts for more
than 30% of the value of the delivered product. The high cost is attributable
to the inadequacy and inefficiency in Nigeria’s transport infrastructure.
Transport
costs on feeder roads to the trunk roads and the railways to the post often
cost as much as between 55 and 60 percent of the receipts from these
commodities. Also, the price elasticity of demand for transport is very high in
Nigeria’s
transport system. The more efficient the transportation network is, the lower
the transport costs. At present, large productions of the economically
important goods are bulk low valued agricultural and mining products (Olanrewaju
and Falola, 1986).
The fact remains that transport
infrastructure needs to cut across sectors and is central to economic growth
and development. The state of infrastructure for economic development in the
country is far from meeting the expectations of the average investor in the
Nigerian economy. This inhibits investments and increases the cost of doing
business.
However, economies in transition do
spend heavily on physical infrastructure to improve economic welfare of the
people and facilitates production of goods and services across all sectors of
the economy so as to stimulate rapid growth in aggregate output. Empirical
studies (like Ram, 1986; Deverajan 1993; Niloy 2003) have found that there
exists positive correlation between economic growth and government spending on
infrastructural facilities, especially, the transport sector.
In the
transportation sector of Nigeria
economy, there are numerous problems which the sector faces. These problems are
great source of concern to economists and the government at large. The
transport sector virtually serves as sources of foreign earning and equally
means of conveying goods and services to the nooks and crannies of the country.
Transportation sector encompasses, air, sea and land transportation system with
specific reference to Nigeria,
the road transportation system is the most widely used of all forms of
transportation system. Hence, the federal state and local government have
ensured that road transport infrastructure develop in all federation. However,
inadequate of credit facilities has been identified as a major obstacle for
improving transport in Nigeria.
The federal government in its desire to encourage the development of transport
sector has put in place certain facilities to the transport sector through
various schemes and policy guide lines.
Transportation
infrastructures (roads, rail, airports and seaports) are the arteries for the
free flow of people, goods and information, three things necessary in a
manufacturing and export economy. If eyes are the light to human soul, then the
airports and seaports are the eyes that international business travellers see a
country with. How important there transportation infrastructures are to the
manufacturing economy is as good as anybody can guess. The domestic need for
transportation infrastructure brings with the possibility to become an
important link in the regional transportation system in the movement of goods
manufactured in rural areas. There is a need to revive waterways and railway
transportation. A country cannot become a manufacturing giant without well –
connected inner perimeter roads, airports, seaports and railroad stations. Some
of the problems faced in transportation sector are:-
i.
The neglect of rail and waterways for decades has contributed
to the nation’s dependence on food importation, as agricultural produce from
one part of the country cannot be transported cheaply to other parts.
ii.
Lack of cheap means of transportation has discouraged many
farmers whose harvests perished because they could not access to markets, so
that agricultural produce could be moved cheaply to urban markets.
iii.
The inability to maintain the existing north-south colonial
rail truck for the movement of goods. This is major reason for the amalgamation
of the north and the south by the colonial masters for their easy management of
movement of goods.
iv.
The decline in rural economic activities is largely
responsible for high rates of joblessness; crime and declining quality of life,
as the urban areas become overpopulated resulting in environment problems, such
as over-flow of garbage, lack of proper drainage system.
v.
The Nigerian Railways Corporation (NRC) monopoly law should
be abrogated and a regulatory framework set up to guide private instruments in
the rail transportation infrastructure.
vi.
The lack of interest, and failure to provide incentives,
might have discouraged the private sector from investing in rail and water
transportation. Because of the importance of this sector in a manufacturing
economy, a form of enterprise fund should be created with the purpose of
promoting private sector development in the rail and water transportation.
International
business travellers must agree that Airport security and foreign investment go
hand in hand. Travel is a basic necessity for business to be conducted between
countries, while symbolizing a deeper connection that is fundamental to a
country’s economic fixture. Aviation is the travel mode of the world; the first
and last impression is your airport. Foreign investment is going to come from
people who fly. It is vital if Nigeria
is going to become a manufacturing export economy that encourages business
people will doubt whether Nigerian’s airport and airspace can attain
international standards. These recent misshape give a bad impression not only
of Nigeria
airport, but also of Nigeria
as a whole, and the lack of structural management system. The bottom line is
that if you can’t get there, you can’t trade. Improving airport security is so
critical for international trade. The attract travellers and commercial
shippers, air travel to Nigeria
must be safe and secure.
The research
questions which will guide this work are as follows:
1. What
extent does government expenditure impact economic growth in Nigeria?
2. Is
there any long-run relationship between government expenditure and economic
growth in Nigeria?
The
broad objective of this research is to investigate the impact of government
expenditure on economic growth in Nigeria. To achieve this objective,
the research shall specifically aim at:
1.
To investigate the impact of
government expenditure and economic growth in Nigeria.
2.
To
evaluate the long-run relationship between government expenditure and economic
growth in Nigeria.
The following hypotheses shall also
guide the study:
Ho:
Government expenditure does not have significant impact on economic growth in Nigeria.
Ho:
Government expenditure does not have
significant long-run relationship and economic growth in Nigeria.
The relevance of
this study cannot be over emphasized going by the present day government
expenditure and the regardless of the Nigeria economic growth the Nigeria
government will find outcome of the study useful in terms of knowing how best
to structure yearly budgets so as to benefit the citizen and enhance the
economy, policy makers no doubt will find this study very important to them
Economists and outcome of the study useful in terms of further researchers.
This
study is on the impact of government expenditure on economic growth in Nigeria. It
shall cover a period of 34 years from 1981 to 2015. In the process of
this research work, some constraints were encountered. Such constraints include
data inconsistency. Data from different publications of the same agency tend to
show some discrepancies and widens when compared with data from other agencies
for same periods. Other constraints include the shortness of the period
required for the conduct of this research. In spite of all these, the
researcher made concerted efforts to ensure that the constraints do not
adversely affect the precision of the research findings.
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