ABSTRACT
This study seeks to empirically examine the effect of government investment portfolio on economic growth of Nigeria from the period 1980-2023. The objective was set to find out if government investment portfolio significantly affects economic growth in Nigeria; determine the causality direction between government investment portfolio and economic growth in Nigeria; show the trend of government investment portfolio over the years and ascertain if government focuses more on current spending or capital spending and its effect on growth. The variable included in this model are based on data collected from a period of (1980-2023) through which the impact of government investment portfolio and other variables like money supply, inflation and foreign debt was explained. The necessary information needed to explore this economic phenomenon can be illustrated in a functional relationship. To evaluate the regression result in this research model, it was on the basis of the economic a priori expectation of the parameters and statistical test. A secondary data was employed in this study. The data was gotten from major sources like the Central bank of Nigeria statistical bulletin, CBN annual report, Economic journals and textbooks. From the empirical result, it was found out that government investment portfolio has a positive impact on the economic from the period covered (1980- 2023). Therefore government was advised to encourage the federal government investment portfolio through various policy measures like granting of subsidies, increasing sectorial allocation to the sector, investment portfolio on education, health infrastructures, industries and other project to facilitate the productive base of the economy. On the other hand, it was seen that inflation rate, foreign debt, have no significant impact on economic growth. This showed that government have not provided all the needed measures to check price stability, excess money supply, low industrialization, subsistence agriculture and other sources of inflation rate, foreign debt in the country. To proffer solutions to the problem, policies were recommended to tackle the setbacks to economic growth.
TABLE OF CONTENTS
Cover Page - - - - - - - i
Title Page - - - - - - - ii
Certification - - - - - - - iii
Dedication - - - - - - - iv
Acknowledgements - - - - - - v
Table of Contents - - - - - - vi-vii
Abstract - - - - - - - - viii
CHAPTER ONE:
Introduction
1.1 Background
of the study - - - - 1
1.2 Statement
of the problem - - - - 5
1.3 Objectives
of the study - - - - - 7
1.4 Research
Hypothesis - - - - - 7
1.5 Scope of
the study - - - - - 8
CHAPTER TWO:
Literature Review
2.0 Introduction - - - - - - 9
2.1 Conceptual/Theoritical
Literature - - - 9
2.2 Empirical Review
- - - - - 13
2.3 Theories of
Government Expenditure - - - 21
CHAPTER
THREE: Research Methodology
3.1
Theoritical Framework - - - - - 24
3.1.1 Nature and Sources of Data - - - - 24
3.2
Model Specification - - - - - 25
3.3 Method
of Estimation - - - - - 25
3.4 Economic
Apriori Expectation - - - - 26
3.5 Sources
of Data - - - - - - 27
CHAPTER FOUR: Data Presentationand
Analysis of Result
4.1
Introduction - - - - - - 28
4.1.1 Data
Presentation - - - - - - 28
4.1.2 Unit
Root Test for Stationarity - - - - 29
4.1.3 Cointegration
Test - - - - - 30
CHAPTER
FIVE: Summary, Conclusion and Recommendations
5.1
Summary - - - - - - - 33
5.2
Conclusion - - - - - - - 33
5.3
Recommendations - - - - - 34
References - - - - - - - 35
Appendix - - - - - - - 38-47
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
The
role of capital formation, financial development and financial sector in
economic development of countries has been established in the literature.
Sources of capital formation could either be internal or external, debt or
equity. Foreign capital which could be in the form of foreign direct investment
or foreign portfolio investment, have been found to play a significant role in
the development of economies of emerging countries.
Finance is a function in business
(private/public) that acquires funds for the organization and manages those
funds within the organization. These activities include preparing of budgets;
doing cash flow analysis; and planning for the investment portfolio of funds
assets (Musgrave, et. al. 2018).
Public finance on the other hand refers to
all activities of government in generating and allocating (spending) revenue
towards ensuring efficiency of the state and the general well-being of the
people, that is, financial operation of public treasury and its implication.
Dalton (2021) affirmed that public finance is concerned with income and
investment portfolio measures of the public budget authorities together with
the adjustment of one to the other. The management of public finance would
bring about control and co-ordination of the funds to achieve viability of
projects and programmes in the public sector (Shirras, 2019).
In most economies today, government
intervenes in fundamental roles of allocation, stabilization, distribution and
regulation, especially where or when market proves inefficient or fails in
resource allocation. Government also intervenes, particularly in developing
economies to achieve macroeconomics objective such as economic growth and
development, full employment, price stability and poverty reduction. (Asian
Economic and Social Society Publication (AESS), 2011).
It is a fact that no society thoughout
history has ever attained a high level of economic affluence without a
government. Where government do not exist anarchy reigned and little wealth
accumulated by productive economy activity. After government took hold, the
rule of law and the establishment of private property right often contributed
and it has similarly impacted on their societies as well. Economic growth
represents the expansion of a country’s GDP or outputs. Growth means an
increase in economic activities (Hymann, 2017).
Todaro (2021) Citing Kuznets defined a
country’s economic growth as a long term rise in capacity to supply increasing
diverse economic goods to is population, this growth capacity based on
advancing technology and the institutional and ideological adjustment that is
demanded. The experience of the old Soviet Union is revealing as well the
comparison of east and West Germany during the cold war era or of north and
South Korea today.
In the Nigeria context, the public sectors
consist of the federal government, state government and local government. For
example, Wagner’s Law predicts that the development of an industrial economy
would be accompanied by an increased share of public investment portfolio in
gross national product (GDP). This is not an exception in Nigeria, as a
developing nation, trying to expand its industrial base – manufacturing,
agriculture, mining, extractive industry etc. The scope of government
investment portfolio has obeyed this law since the economic base and government
investment portfolio has been expanding over the years. Furthermore, Wagner’s
law suggests that a welfare state evolves from free market capitalism due to
the population voting themselves ever increasing social services.
Neo-Keynesians and socialists often urge governments to emulate modern welfare
states like Sweden, which Nigeria is taking a cue from. As progressive nations
industrialize, the share of the public sector in the national economy grows
continually. The increase in state investment portfolio is indeed due to three
reasons as identified by Adolf Wagner (German economist, 1835 – 1917), namely:
i.
Social activities of the State,
ii.
Administrative and Protective
Actions and
iii.
Welfare functions.
The material below is an apparently much
more generous interpretation of Wagner’s original premise.
i.
Socio-political, i.e., the
state social functions expand over time; retirement insurance, natural disaster
aid (either internal or external), environmental protection programmes.
ii.
Economic: advance in science and
technology, given room to an increase of state assignment into the sciences,
technology and various investment projects.
iii.
Historical: the state resorts
to government loans for covering contingencies and thus the sum of government
debts and interests amounts grow. What this is means is that it is an increase
in debt service expenditure.
This principle applies to Nigeria as it
increases her economic and capital bases socially and politically. As
explained, there are two broad parts of government expenditures, namely: the
recurrent and capital expenditures.
a. Recurrent expenditure-the financial
outlay daily running of government business, Final consumption of government
expenditure. For that of Federal Government, it is divided into three main
parts which are personnel emoluments, other charges and special.
Personnel emoluments are wages and salaries
of government workers the allowances accruing to them. Other charges are
maintenance expenditure, travel, stationery, and consolidated charges
Consolidated charges include emolument for judges and settlements government
debts. Special investment portfolio - to acquire durable equipment, machines,
motor vehicles, furniture etc. At times they are more of capital than running
costs. Capital expenditure-investment outlays that increase the asset of
government. It depends not only on the size of revenue but on the amount used
annually by government.
Generally, government investment portfolio
has been on the increase with increase in the Gross Domestic Product (GDP). That
is the marginal propensity to spend in the public sector is high (the increase
in current investment portfolio as a percentage of the increase in the
GDP).This is as the need of the society increases. As government revenue
increased, government decided on the provision of a number of social services
as a means of spreading oil wealth such as free education etc. As a matter of
necessity, government can embark on the provision of public capital goods.
Hence overhead capital like roads etc. with heavy operating and maintenance
investment portfolio Relatively, cost of public services is higher than private
owing bureaucracy in government administration resulting in red-tape in the
system.
During the first nation rolling plan
(1989-1991), government aimed at effort to combat inflation, hence large
budgetary deficits were to be avoided. Government expenditures were to be made
more cost effective and kept at level that were consistent with the nations
resources realistic growth target and general economic stability. The major
instruments by which the government can ensure an effective growth in economic
activities are;
i.
investment portfolio that
induce the firm or workers to produce certain goods and services.
ii.
Taxes that reduce private
consumption or investment and thereby free resource for public expenditure.
iii.
Regulation and controls that
direct people performance and so on.
These objectives are summarized as;
a. Provision of infrastructural facilities
such as good roads, light, water, transport and communication facilities etc.
in both urban and rural area with the view to adequate support to the
productive sector and enhancing private sector participation on the various
sectors of the economy.
b. Streamlining public investment portfolio
to give priority to the completion of the initial ongoing viable project.
Direct investment portfolio is that incurred
in an establishment of economically viable commercial enterprises such as iron
and steel complex, oil and gas refineries etc.
The
Nigerian capital market’s total value of transaction (VTRAN) is singled out for
investigation in terms of its role in economic growth in that it represents a
more active and realistic measure of contribution to growth. VTRAN represents
currently actively traded securities unlike market capitalization which is a
blanket for both active and non-active listed shares on the capital market.
Figures from Central Bank of Nigeria [CBN](1981)’s statistical bulletin have
shown that the total value of long term investment portfolio (represented by
total value of transaction at the Nigerian Stock exchange) as at 1981 stood at
N0.30billion with an average of N4.07 billion between 1981 to 2022. The value
of total long term investment portfolio became N0.23billion in the year 2022.
Beginning from 1991, a slight rise occurs to VTRAN to record N0.24billion in
that year. Between 1991 and 2000, the average VTRAN stood at N77.46billion
against the N4.07billion average of the 80s. In year 2000, the value was
N28.5billion. Further statistics shows that N57.68billion and N799.91billion
are the value of long term investment portfolio in years 2001 and 2010
respectively but the average over the period stood as N5437.29billion. From
2011 (with year’s value standing as N638.93billion) to 2020 (with year’s value standing
as N1,086.18billion), the average value of capital market transactions (long
term portfolio) over the last decade of this study was N10992.79billion.
In
the same vein, statistics (CBN,1981) on real gross domestic product (RGDP) of
Nigeria indicates the 1981 figure to be N19,549.56billion but it reached
N21,462.73billion in 2022 with period’s average standing at N181,106.78billion.
From 1991 through 2000, the average RGDP was N228,259.00billion with the
associated 1991’s and 2000’s RGDP standing at N21,539.61billion and
N25,169.54billion respectively. However, between 2001 and 2010, there was an
average RGDP in Nigeria standing at N399,909.34billion; with respective year’s
RGDP of N26,658.62billion and N54,612.26billion for years 2001 and 2010. Furthermore,
N57,511.04billion and N70,014.37billion are the Nigeria’s RGDP for 2011 and
2020 respectively. In the last decade of this study, (2011-2020), the Nigeria’s
RGDP average figure stood at N664,460.73billion.
The
upward trend of the both RGDP and long term investment portfolio, as indicated
by the decades’ average values, indicate a tentative/perceived association
between the two variables. What is probing here is: to what extent does the
value of transactions at the Nigerian Stock Exchange (NSE) (a proxy for long
term portfolio in this study) contributes to the productive capacity of the
country in form of economic growth? Or can the concurrent upward trends be a
mere statistically display of association and of no economic and financial
implications?
In an
attempt to establish empirical link between investment portfolio and economic
growth, extant studies (such as Baghebo and Apere (2014), Acha and Essien
(2018), Ekine, Ewubare and Ajie (2019)) focused squarely of foreign portfolio
investment, without attention to long term investment portfolio, as represented
by portfolio of capital market investments. In fact, most past studies found
evidence of a positive significant connection between foreign capital inflows
and economic growth of recipient countries (Baghebo and Apere (2014), Okonkwo
(2016), Suhadak and Nuzula (2016), Acha and Essien (2018), Ekine, Ewubare and
Ajie (2019), Ezeanyeji and Maureen (2019)). Moreover, without specificity of
portfolio, most other past studies had also emphasized the role of capital
market on economic growth (Donwa and Odia (2010); Kolapo and Adaramola (2012),
Yadirichukwu and Chigbu (2014), Obubu et al. (2016), Inimino, Bosco and Abuo
(2018), Babarinde, Gidigbi and Abdulamjeed (2020)).
1.2
Statement of Problem
Theoretically,
investment capital available through the capital market is expected to increase
the financial resources available to firms that will help them expand business
operations and as well eventually contribute to the productive capacity of the
entire economy. However, empirical link between investment portfolio and
economic growth is still largely unexplored by researchers, most especially in
developing country such as Nigeria.
The size of government investment portfolio
and its effects on long-run economic growth and vice versa has been as issued
of sustained interest for decades.
Policy makers are divided as to whether government expansion helps or
hinders economic growth. Advocates of bigger government argue that government
programs provide value “pubic goods” such as education and infrastructure they
also claim that increases in government spending can boost economic growth by
putting money into people’s pocket. Proponents of smaller government have the
opposite view. They explain that government is too big and that higher spending
undermines economic growth by transferring additional from the productive
sector of the economy to government, which uses them less efficiently. They
also warn that expanding public investment portfolio leads to complication in implementing
pre-growth policies, Such as fundamental tax reform and personal retirement
accounts. This is because critics can use the existence of budget deficit as a
reason to opposite policies that would strengthen the growth of the economy.
A major concern about the Keynesian school
of thought is that; if government interference is an effective remedy for
recession and has no side effect, why do so many oppose the policy of budgetary
expansion? Firstly, a large public sector diminishes the business sector in
personal and the sources of investment. It may be maintained that in time of
recession, much of the workforce is not employed at all, and therefore,
employment in the public sector does not come at the expense of the public
sector. Furthermore, in any growing economy, Government spending can be
curtailed, the government can revert to a lower level of spending and personnel
can be redirected to the business sector. However, while budgetary expansion is
easy in recession, cut-backs during economic high are very difficult. No
minister or director of a public institution relinquishes authority and budget
easily. The result is an inflated and inefficient public sector even after the
recession is over, and also a lower rate of growth in the private sector than
its potential would indicate.
The relationship between public investment
portfolio and growth is important especially for developing countries (Nigeria
inclusive), most of which have experienced increasing level of public
investment portfolio over time. There is evidence that, unlike in the case if
developed countries, consumption is not negatively related with economic
growth. This study shall empirical investigate this relationship in the case of
Nigeria, with a view of explaining the reason behind the observed causality
between them.
1.3
Objectives of the Study
The main objective of the study is to
empirically ascertain the investigating the impact of economic growth on
portfolio performance in Nigeria. Specifically it seeks to;
1.
Find out if government
investment portfolio significantly affects economic growth in Nigeria.
2.
Determine the direction of
causality between government investment portfolio and economic growth in
Nigeria.
3.
Ascertain if government focuses
more on current spending or capital spending and its effect on growth.
1.4
Research Question
1.
To find out the extent
government investment portfolio significantly affects economic growth in
Nigeria?
2.
To determine the direction of
causality between government investment portfolio and economic growth in
Nigeria?
3.
To ascertain if government
focuses more on current spending or capital spending and its effect on growth?
1.5
Research Hypothesis
The hypothesis for this study is stated
thus;
1.
H0: Government capital
investment portfolio and Government recurrent investment portfolio has no
significant impact on the Nigerian economy.
2.
H0: There is no causality
between economic growth and government expenditure.
3.
H0: Total government
investment portfolio has no significant effect on economic growth.
1.6
Scope of the Study
For the purpose of this study, Nigeria
government investment portfolio will be critically examined. The study will
span from 1980 – 2023. Government investment portfolio will be splitted into
recurement and capital expenditure.
1.7 Justification
of the Study
There was a need for this study because of
the need delineated the relationship between government expedition and economic
growth in Nigeria which can only be
assessed along selected components as a process of development to the county,
participation in budgeting making process, availability expedition, equipment
and facilities. However, both assertions go to suggest that man has numerous
desires, which he constantly seeks to satisfy.
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