ABSTRACT
This study examined the impact of government expenditure on economic growth in Nigeria. Specifically, the study investigated the impact of capital expenditure on administration, transfers, economic, social and community services. And also impact of recurrent expenditure on administration, transfers, economic, social and community service on the growth of Nigeria economy. Time series data from 1981 to 2018 from the Central Bank of Nigeria (CBN) statistical bulletin were collected, analyzed and tested. The ordinary Least Squares (OLS) estimation technique was used in the estimation of the specified models within the framework of the Error Correction Modelling (ECM). Results of the cointegration tests showed that the variables were cointegrated and hence there existed long run relationship among the variables in the estimated equations. The results of the short run estimation showed that public capital and recurrent expenditures on administration have negative impact on economic growth in Nigeria. Capital and recurrent expenditures on economic services impacted positively on economic growth in Nigeria. Similarly, capital expenditure on social and community services impacted positively on economic growth in Nigeria, while recurrent public spending on social and community services impacted negatively on economic growth in Nigeria. Lastly, government capital and recurrent expenditures on transfers impacted positively on economic growth in Nigeria. Based on the results of findings, the study recommended firstly, that government should increase its spending on the sub-components of administration like defence, law and order, security, and other components of administration that could have positive impact on economic growth. Secondly, the government should increase expenditure on economic services such as agriculture, construction, transportation, communication, electricity, mining, quarrying, manufacturing, banking and other economic services. Thirdly, there is also need for the government to increase its expenditure on social services such as education, health, water resources, sanitation, rural development, health care, housing, roads and other social services components. Lastly, the government should increase its expenditure on transfers such as pensions, gratuities, bursaries, subsidies, welfare, subventions, contingency and grants as their increment will boost consumption and hence economic growth in Nigeria.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables x
List of Figures xi
Abstract xii
CHAPTER 1: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the Problem 7
1.3 Objectives of the Study 12
1.4 Research Questions 13
1.5 Hypotheses 13
1.6 Scope of the Study 14
1.7 Limitations of the Study 14
1.8 Significance of the Study 15
1.9 Operational Definition of Terms 16
CHAPTER 2: LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.1 Conceptual
Review 18
2.1.1 Concept
of public expenditure and economic growth 20
2.1.2
Public expenditure and the economy 27
2.1.3 Classification of public expenditure 29
2.1.4 Public expenditure sectors in Nigeria 31
2.1.5 Determinants
of public expenditure rise 35
2.1.6 Types
of public expenditure 39
2.1.7 Functional
composition of public expenditure in Nigeria 40
2.1.8 Nature of public expenditure in Nigeria 44
2.1.9 The nature of publicly supplied goods in
Nigeria 49
2.1.10 Government expenditure, revenue and economic growth 50
2.1.11 Fiscal policy in Nigeria 52
2.2 Theoretical Review 54
2.2.1 Wagner’s law increasing state activity 54
2.2.2 The keynesian theory of public expenditure 57
2.2.3 Buchanan
and tullock theory of public expansion 59
2.2.4 The
critical- limit hypothesis on tax tolerance 60
2.2.5 Musgrave
and rostow development model 60
2.2.6 Wiseman-peacock hypothesis 61
2.2.7
The neoclassical growth theory 62
2.2.8
Endogenous growth theory 65
2.3 Review of Empirical Literature 70
2.4 Summary
of Review of Literature 99
2.5
Gaps in Literature 106
CHAPTER 3: METHODOLOGY
3.1 Research Design 109
3.2 Sources of Data 109
3.3 Method of Data Collection 109
3.4 Model Specification 110
3.4.1 Capital
expenditure-economic growth nexus 111
3.4.2 Recurrent
expenditure-economic growth nexus 111
3.5 Aprior Expectation 112
3.6 Definition and Measurement of Variables 112
3.6.1 Dependent variables 112
3.6.2 Independent variables 113
3.7 Estimation Techniques 114
3.8 Estimation Procedures 114
3.8.1 Unit root test 114
3.8.2 Co-integration test 115
3.8.3 Error correction mechanism 117
CHAPTER
4: DATA PRESENTATION, ANALYSIS AND DISCUSSION OF
FINDINGS
4.1 Data presentation and Analysis 118
4.2
Analysis of Capital Expenditure -
Economic Growth Nexus 127
4.2.1 Descriptive statistics 127
4.2.2 Unit root test 129
4.2.3
Co-integration test of the capital expenditure – economic growth nexus 131
4.2.4
Lag length criteria 134
4.2.5
Over-parameterized result of the
capital expenditure – economic
growth
nexus 135
4.2.6 Parsimonious result of capital
expenditure-economic growth nexus 137
4.2.7 Diagnostic
test of the capital expenditure-economic growth equation 141
4.3 Analysis
of Recurrent Expenditure – Economic Growth Nexus 143
4.3.1 Descriptive statistics for the recurrent
expenditure and economic
growth
nexus 143
4.3.2 Unit root test 148
4.3.3 Co-integration test of the recurrent expenditure – economic
growth nexus 145
4.3.4 Lag length criteria 147
4.3.5
Over-parameterized result of the
capital expenditure – economic
growth nexus 150
4.3.6 Parsimonious result of recurrent
expenditure-economic growth nexus 152
4.3.7
Diagnostic test of the recurrent
expenditure-economic growth equation 158
4.4 Discussion of Findings 159
CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 162
5.2 Conclusion 164
5.3 Policy Recommendations 165
5.4
Contribution to Knowledge 166
5.5
Suggestion for Further Studies 167
References 168
Appendices 185
LIST OF TABLES
4.1a Trend
analysis of selected macroeconomic variables 119
4.1b Trend
analysis of selected macroeconomic variables cont. 124
4.2 Descriptive
statistics for capital expenditure and
economic growth nexus 128
4.3a Unit root test using the Augmented Dickey-Fuller (ADF) test 130
4.3b Unit root test using the Philips – Perron
(PP) test 131
4.4a
Trace test 132
4.4b
Maximum eigenvalue test 133
4.5
Lag length selection criteria 134
4.6 Overparameterized result of capital
expenditure-economic
growth nexus 136
4.7 Parsimonious result of capital
expenditure-economic
growth
nexus 138
4.8 Diagnostic test 142
4.9 Q-statistics 143
4.10 Descriptive statistics for recurrent expenditure and economic
growth
nexus 144
4.11a Unit root test using the Augmented Dickey-Fuller (ADF) test 146
4.11b Unit root test using the Philips - Perron (PP)
test 147
4.12a Trace test 148
4.12b
Maximum eigenvalue test 149
4.13 Lag length selection
criteria 150
4.14 Overparameterized result of capital expenditure-economic
growth
nexus 151
4.15 Parsimonious error correlation result of
recurrent
expenditure-economic
growth nexus 153
4.16 Diagnostic test 158
4.17 Q-statistics 159
LIST
OF FIGURES
1: Cumulative sum of recursive residuals (CUSUM) test 141
2: Cumulative sum of recursive residuals (CUSUM) test 157
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The
primary macroeconomic objective of governments in many countries is the
achievement of rapid and sustainable economic growth. Hence, economic
management has become a core pre-occupation of governments of both developed
and developing economies. Governments of diverse nations influence the trend of
economic activities by expending resources towards infrastructural development,
defence, education, health and other social services. Usually, governments feel
compelled to actively intervene in an economy by either increasing or
decreasing public expenditures. Government expenditure otherwise known as
public expenditure is a crucial instrument used for national governments to
control the economy. According to Arrow and Kurz (2010), government expenditure
emanated from revenue allocation towards various economic sectors for growth.
Consequently, the general view is that public expenditure, especially on social
and economic infrastructures could be growth-enhancing in nature.
Economic
growth in Nigeria has to do with measure and increase in Real GDP (real output)
which is the measure of national income/national output and national
expenditure. Public expenditure also affects economic development in the area
of statistics. Economic development has to do with how people are actually
affected. The actual living standards and the freedom they have enjoyed. Like
the per capital income of the people, government expenditure also affects
levels of literacy and educational standards of the people, level of health
care, quality and availability of housing, level of environmental standards and
life expectancy. Government expenditure affects both economic growth and
economic development and were used interchangeably in this research Nurudeen
and Usman (2010).
Government
expenditures are classified into capital and recurrent expenditures. Capital
expenditures capture investments in infrastructure such as roads, schools,
health facilities, while recurrent expenditures ideally include government’s
expenses on current goods and services like labour, consumables, wages and
salaries, etc. In other words, while
recurrent expenditure refers to financial outlays necessary for the day-to-day
running of government businesses, capital expenditure refers to investment
outlets that increase the assets of the state (Nurudeen and Usman, 2010). This
categorization, however, is not mutually exclusive but are indeed inter-linked.
For instance, while capital expenditure gave rise to recurrent expenditure, in
most cases, through the operational and maintenance costs of completed capital
projects, the amount available for investment is a function of not only the
size of revenue but also the amount that went annually into the running of government
(Singh and Sahni, 2011).
Several
studies have revealed the channels through which government expenditures could
affect economic growth (Barro 2014; King and Rebelo 2012). A direct effect of
government expenditures relates to a surge in the economy’s stock of capital
(physical or human) reflecting higher flows of government funds. Government
expenditure on education and health, for example, contribute to greater stock
of human capital. Similarly, to the extent that they foster accumulation of
capital, most government infrastructural expenditure falls in the category of
having a direct impact on economic growth. Additionally, government expenditure
has the potentials of contributing indirectly to economic growth by
accelerating the marginal productivity of both government and private supplied
factors of production. For example, government expenditure on research and
development, provides higher productivity in the interaction between physical
and human capital factors. Also, in countries where crime and violence have
been prevalent, increased government expenditure on security could lead to
lower production costs by reducing the need to protect employees and physical
assets, thereby increasing workers productivity and stimulating private
physical investments (Aron, 2010).
In
Nigeria, government expenditure has persistently risen due to large receipts
from production and sales of crude oil, and high demand for public (utilities)
goods like roads, communication, power, education and health. Also, there is
increasing need to avail both internal and external security for the people, in
particular, and the nation, in general. Available statistics from CBN
statistical bulletin (2016), showed that total government expenditure (capital
and recurrent) and its components had continued to rise in the last three
decades. For instance, government total recurrent expenditure increased from N4.85billion in 1981to N36.22 billion in 1990 and further to N461.60 billion in 2000, N3,109.38 billion in 2010 and N4,178.59 billion. On the other hand,
government capital expenditure rose from N6.57
billion in 1981 to N24.05 billion in
1990, N239.45 in 2000, N1152.80 billion in 2009 decreasing to N883.87 billion in 2010 and N634.80 billion in 2016, respectively.
Unfortunately, the rising trend in government expenditure is yet to translate
into meaningful economic growth and development, as Nigeria falls among the
underperforming economies in the world (Ram, 2016).
As
a matter of fact, the link between government expenditure and economic growth
is an important subject of analysis. A central question is whether or not
government expenditure increases the long-run growth rate of the economy.
However, researchers have found that government expenditure might directly or
indirectly increase total output through its interaction with the private
sector (Akpan, 2015). High levels of government consumption expenditures are
likely to encourage employment, profitability and investment via multiplier
effects on aggregate demand (Gradstein, 2014).
The
expenditure of government has been on a geometric increase because of increase
in activities of governmental 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 due to the continuous
state or 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 to a large extent. According to, Arrow and Kurz (2010), public
expenditure was 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.
The
Nigerian public expenditure structure can be segmented into recurrent
expenditure and capital expenditure. The components of the recurrent
expenditure include expenditure on administration such as payment of interest
on loans, and payment of 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 basis for public
spending. Providing and maintaining these social amenities required huge amount
of financing. Hence, investment on infrastructures expected to positively
contribute to economy growth whereas spending on consumption by government
retard growth (Arrow and Kurz, 2000). It is argued that the country would
benefit socially and economically from government investment (spending) on
health, roads, education, agriculture, etc. Among scholars, issue of impact of
public expenditure on the growth of the economy has resulted to continuous
debate.
Government
have been found to be involved in two basic functions, that is the protection
functions and provision of public goods and services. Government protection
functions includes the establishment of the rule of law and property rights
enforcement. With these functions, security of lives and properties are
offered, criminality risk is minimized, and the country is protected from
external aggression. The provision functions centre on the provision of public
goods and services to include power, road, health and education. For instance,
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 growth of the economy. The enormous effects of public expenditure on
economic growth have continued to attract attention of economists recently (Nurudeen
and Usman, 2010).
However,
expenditure without due consideration to the rising needs of the economy is
bound to bring about huge distortions in the economy which may retard growth.
Government has tried since independent to allocate public expenditure
continuously into different economic sectors in the economy. According to Gradstein
(2014), the basic determinant for this allocation has been by political
consideration instead of concise economic considerations.
Ordinarily,
public expenditure lends to the reduction in poverty level, improvement of standard
of living equality in the distribution of income, the overall growth of the
economy. Government engages a number of policy measures as economic
interventions which includes market failure bailout or social equity
improvement via resources redistribution. And it is only government that could embark
on these intervention measures successfully through its public expenditure.
Expenditure
as an expression of gross domestic product (GDP) is regarded as the measure of
the direct involvement of government in the entire economic activity.
Expressing expenditure as a proportion of GDP is beneficial in two ways.
Firstly, it made available the basis for comparing spending analysis overtime.
Expenditure as a proportion of GDP unlike the nominal dollars provides the basis
of comparing meaningfully relative use of resources between years. Finally, it
further revealed relatively, the degree/extent of the intervention by
government in the economy and also aid in social choice analysis (Akpan, 2015).
It is based on the foregoing introductory analysis and discussions on the need
for public sector expenditure to engender growth of the domestic economy that
has necessitated the researcher to embark on this study. By the time this study
is completed, its findings will be able to establish the way forward for public
expenditure and growth of the economy.
Maintaining
law and order, in particular, securing property rights is probably the most
acceptable rationale for government intervention. Theoretically, it is argued
that enforcement of property rights being a public good, its provision can only
be materialized through collective action (Gradstein, 2014). The rationale for
the existence of government anywhere, including Nigeria, can be viewed from the
perspective of the institutions of property rights, rule of law, governance,
security, enforcement of the rule of law. Nigeria is a Federal state with three
tiers, with multiple and diverse ethnic and other socio-political differences,
which most often determine the volume and rate of spending. The nature of
public spending (in Nigeria) depends majorly on the revenue – of which oil
controls a greater percentage – and which is also determined by the vagaries of
world market interactions. The other institutional factors which can influence
public expenditure and economic growth include institutional quality (the
enforcement of property rights), political instability (riots, coups, civil
unrests, civil wars), characteristics of political regimes (elections,
constitutions, executive powers), social capital (the extent of civic – private
- activity and organizations) and social characteristics (differences in income
and in ethnic, religious, and historical background) (Aron, 2010). All these
affect the nations’ investment directly as they create harsh environment and
insecurity, which increases transaction costs and discourage private investment
for growth.
According
to North (2010), “Third World countries are poor because the institutional
constraints define a set of payoffs to political/economic activities that do
not encourage productive activity”. Such rules affects both individuals and
organizations, defined as political organizations (city councils, regulatory
agencies, political parties, tribal councils), economic organizations (firms,
trade unions, family farms, cooperatives), educational bodies (schools,
universities, vocational training centres), and social organizations (churches,
clubs, civic associations) (Aron, 2010). The inability of the government to
enforce the rule of law affects the economies of developing countries,
including Nigeria, and as such, rent-seeking behaviours, corruption, bribery
and protection of individuals and organizations connected with highly placed
people become the common phenomenon. These behavioural attitudes raise the
transaction costs and costs of information in the production process and make
the rule of law unreliable.
It
is therefore necessary to verify the impact of public expenditure on the growth
of Nigerian economy.
1.2 STATEMENT OF THE PROBLEM
In
Nigeria, existence of irregularities in the country has led to public outcry
and there have been increasing frauds in government activities resulting from
misappropriation of public funds, planning and implementation. Literature has
it that government expenditure management in Nigeria since independence has
failed to deliver the much expected macroeconomic stability and growth. A
critical look at the trend of economic variables in this regard revealed that
Nigeria was still grappling with fluctuating economic imbalances evidenced by
inconsistent growth rates, high level of
inflation, unemployment, illiteracy and poverty capped with the recent
recession that hit the economy in 2016 (Aigbokhan, 2016). Furthermore, the
nature of inter-governmental relations or rather lack of coordination and
alignment among different arms of government has contributed to the growing
misplacement of fiscal priorities as resources have increasingly filtered or
diverted to trivial macroeconomic pursuits.
It
is worrisome to note that government expenditure appears not to have caused a
remarkable level of economic growth in Nigeria as expected. For instance,
between 1980 and 1990, while the GDP growth rate maintained an average of
15.35%, government expenditure growth rate average was 11.72%, respectively.
However, the average growth rate of government expenditure between 1991 and
2000 was 24.27%, while GDP growth rate witnessed an average of 17.86%,
respectively in the same period. In the period between 2001 and 2010, GDP
increased on average by 15.89% and average government expenditure stood at
17.32%, respectively. Also, between 2011 and 2016, average GDP growth rate was
3.03% and average government expenditure decreased to 10.04%, respectively
(Nurudeen and Usman, 2010). This showed that government expenditure growth rate
has been paltry, leading to slow economic growth in Nigeria. All these problems
form the basis of the present study.
Besides,
government expenditure in Nigerian economy has metamorphosed from the level of
billion naira to trillion naira in the last decade. The effects of public or
government expenditure are largely unnoticeable on the citizenry. Improvement
in the quality of the socio-economic institutions, structure and composition of
an economy and overall welfare of their residents have led to spending huge
public funds aimed at improving infrastructure, social welfare and employment
generation. The continuous increase in the expenditure by government has not
resulted in much meaningful development. The country has been having the
problem of poor roads, power supply, for instance, and diversion of funds has
also led to collapse of industries, many elephant projects have been abandoned
and huge sums of money invested into education, health, without much benefits
recorded (Gradstein, 2014).
However, interest in growth theory has also revived interest among
researchers in verifying and understanding the linkages between public
expenditure and economic growth. Government spending can stimulate particular
sectors as well as increase aggregate demand taken globally. Over the years, a
substantial volume of research has been directed towards identifying the
elements of public expenditure (at its aggregate and disaggregate levels) without
a consensus agreement. Recent literature on endogenous growth theory predicts
that fiscal policy changes can affect the long-term growth rate by influencing the
determinants of growth (physical and human capital, technological changes, employment
and savings) (Gradstein, 2014).
Most
countries including Nigeria have over the years invested a lot of resources in both
human and material resources with the aim of attaining a sustainable level of
economic growth in output (Ekpo, 2015). Such efforts are in recognition of the
part played by government spending and determining economic activities level
and thus general welfare of the residents of the country. In Nigeria, such
efforts have led to an increase in government expenditures 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, 2018).
The
relationship between economic growth and government spending, or more generally
the size of the public sector, is an important subject of analysis and debate.
A central question is whether or not public sector spending has increased the
long run steady state growth rate of the economy. The general view is that
public expenditure, notably on physical infrastructure or human capital, could
be growth-enhancing although the financing of such expenditures could be
growth-retarding. Existing literature in Nigeria has not been in agreement on
the nature and impact of government expenditure on economic growth. Ekpo (2015),
found that capital expenditure on construction and manufacturing crowd out
private investment. Ogiogio (2013), observed a long run relationship between
economic growth and government expenditure. Aigbokhan (2016), reported
abi-directional causality between government total expenditure and national
income. Essien (2017), using data from 1980-2014, found no causality between
public expenditure and national income. Odusola (2014) and Nurudeen and Usman
(2010), found that military expenditure had no significant relationship with
economic growth in Nigeria. However, Adewara and Oloni (2012), found that
expenditure on defence was positively related with economic growth.
Akpan (2015), used Error Correction Model
(ECM) in his study of impact of government expenditure on economic growth in
Nigeria with two lags. The results showed that government capital expenditure
had a significant positive effect on real output, but that real government
recurrent expenditure had an insignificant effect on growth. Olorunfemi (2008),
in a study on the relationship between economic growth and public expenditure
in Nigeria surprisingly concluded that there was no link between gross fixed capital
formation and GDP and that public expenditure had affected GDP without
elaborating the type of relationship. Nurudeen and Usman (2010), studied impact
of government expenditure on economic growth by disaggregating government
expenditures into capital expenditure, recurrent expenditure, defence,
education, health, transport and communication and fiscal balance, using
cointegration method, and found that all the variables except defence and
agriculture were statistically significant. From the foregoing above review of
past works indicated that there was no consensus among researchers on the
nature and impact of public expenditure on the growth of Nigeria (and indeed other
countries). Further investigation into the matter is of ultimate necessity for
Nigerian government to harmonize the views of past studies and as such bridge
existing gap among them.
Nigeria
has consistently had deficit spending over the years without equivalent rate of
economic growth. Available data shows that output of Nigeria has been
fluctuating for some years and the sources of these shocks might not be clear. The
growth rate (real GDP growth) of output was 3.2%, 2.4%, 2.8%, 3.8% and 4.7% in
1997, 1998, 1999, 2000 and 2001 respectively, while the total expenditure
growth was 12.1%, 15.6%, 28.1%, 15.6%, and 19.3% in 1997, 1998, 1999, 2000, and
2001, respectively (CBN, 2001). This implied that the growth rate of public
expenditure was far higher than that of economic growth.
The
aggregate expenditure of the Federal Government, in nominal terms, increased by
32.2 per cent to N3,240.8 billion in 2008 (CBN, 2008). As a proportion of GDP,
total expenditure increased by 13.5 per cent, from 11.7 per cent in 2007, while
the GDP growth rate was 6.4 percent, almost the same as the 6.5 per cent
recorded in 2007 and the average annual projected growth rate for the period
2004 – 2008. This implied that public expenditure has been growing faster than
the rate at which the output was growing. As a percentage of GDP, recurrent
expenditure increased from 1.2 percentage points to 8.8 per cent. Most of the
components of recurrent expenditure increased relative to their levels in 2007.
As a proportion of Federal Government revenue, capital expenditure was 30.1 per
cent, exceeding the stipulated minimum target of 20.0 per cent under the
secondary convergence criteria. The data spoke volume that the economy did not
grow at a fast rate as the growth rate of government expenditures. It is
expected that as public expenditure expands output will be expected to expand
also, because public expenditure should be translated into output growth. Or could
it imply that much of the public expenditure found their way into some other
paths different from their intended routes?
However,
in 2009, the aggregate expenditure of general government fell by 5.1% from its
level in 2008, which represented 29.4% as compared with 31.5% in 2008, while
GDP growth rate, at 1990 constant prices, was 6.7%, which exceeded the 6.0%
recorded in 2008 and annual growth rate of 6.4% for the period of 2005 – 2009
(CBN Annual Report, 2009). In 2010, the aggregate expenditure of general
government increased by 15.3% from the level in 2009. As a proportion of GDP,
it represented 28.4% as compared with 28.8% in 2009, while the growth rate of
GDP was 7.9% which exceeded the 7.0% recorded in 2009 and the average annual
growth rate of 6.7% but went lower than the target growth rate of 10% for the
year (CBN statistical bulletin, 2015).
From
these data, the rate at which the output grew has been lower than that of the
growth of public expenditure. This simply meant that there is need to
investigate whether increases in public expenditure have been contributing to
economic growth in Nigeria, past studies discoveries notwithstanding, the data
on the fluctuations of the GDP and public (government) expenditure have been inexhaustible.
This makes it expedient to understand the nature of such fluctuations in the sectors
of the Nigerian economy.
1.3 OBJECTIVES OF THE
STUDY
The
broad objective of this research work is to determine impact of public
expenditure on the growth of Nigerian economy. However, the specific objectives
are as follows:
1)
To examine if capital
expenditure on administration impact on growth of Nigerian economy.
2)
To ascertain if capital
expenditure on economic, social and community services influence growth of
Nigerian economy.
3)
To determine if capital
expenditure on transfers improved growth of Nigerian economy.
4)
To investigate if
recurrent expenditure on transfers respond significantly to the growth of
Nigerian economy.
5)
To analyse effect of
recurrent expenditure on administration on growth of Nigerian economy.
6)
To assess if recurrent
expenditure on economic, social and community services contribute to the growth
of Nigeria economy.
1.4 RESEARCH QUESTIONS
In
view of the above stated objectives, the following questions were formulated to
guide the study;
1)
What impact has capital
expenditure on administration on the growth of Nigerian economy?
2)
In what ways does capital
expenditure on economic, social and community services influence growth of
Nigerian economy?
3)
To what extent does
capital expenditure on transfers improve growth of Nigerian economy?
4)
In what ways does
recurrent expenditure on transfers respond to growth of Nigerian economy?
5)
How does recurrent
expenditure on administration affect growth of Nigerian economy?
6)
What impact has recurrent
expenditure on economic, social and community services created on growth of
Nigerian economy?
1.5 HYPOTHESES
Based
on these above stated objectives and research questions, the following
hypotheses are formulated to empirically guide the study.
1)
H01: Capital
expenditure on administration does not have significant impact
on growth of Nigerian economy.
2)
H02: There is no significant impact on capital
expenditure to economic, social
and community services on growth of
Nigerian economy.
3)
H03: There is no significant impact on capital
expenditure to transfers on
growth of Nigerian economy.
4)
H04: Recurrent expenditure on transfers does not
have significant impact on
growth of Nigerian economy.
5)
H05: Recurrent expenditure on administration has
no significant impact on the
growth of Nigerian economy.
6)
H06: Recurrent expenditure on economic, social
and community services
have no significant impact on the growth of Nigerian
economy.
1.6 SCOPE OF THE STUDY
This
research was basically to examined the impact of public expenditure on growth
of Nigerian economy. The study dwelled mainly on capital and recurrent
expenditure and gross domestic products as proxy for economic growth.
Capital
expenditure and recurrent expenditure was decomposed to administration, social
and community services, economic services and transfers to bring out a better
result. The study covered period between (1981-2018), 37 years. The choice of
the period was to enable the study have a better result because the longer the
period the better the result.
This
period was long enough for reliable result to be obtained. The review period
covered period of oil boom and increase in government revenue and expenditure,
period of oil glut and increase in deficit, period of growth in petroleum and
decline in agricultural sector, period of expansionary and contradictory or
restrictive monetary and fiscal policies, period of structural reforms and
periods of guided reregulation with abandonment of liberalization policies.
1.7 LIMITATIONS OF THE
STUDY
It
is important to note that a study of this kind would likely be faced with some
constraints, ranging from dearth of data, financial inability to insufficiency
of time. The research has a time frame within which to complete it. In view of
this, the study was limited to the available time to reach out to all the
necessary information required.
Another
limitation of the study is the methodological constraint given the current
development in theoretical econometrics. On the whole, the researcher made the
best efforts in optimizing the available resources and information without
allowing the limitations to make the researcher lose sight of the quality of
the final output. In essence, these limitations do not impinged on the validity
of this work.
Finally,
there was a problem of information classification especially in the internet,
non registered members were not allowed access to certain publications.
1.8 SIGNIFICANCE OF THE STUDY
This
study will help policy makers and managers of the Nigerian economy to know
where to channel funds for effective contribution to the growth of Nigerian
economy.
It
will also create an attitudinal change among the managers of the Nigerian
project and also help the Nigerian government to position properly her
budgetary intensions and policies so as to achieve the aim for which they were
made and by doing so bring about the expected economic development.
The
study will also serve as a veritable tool to investors in making investment
decision. Scholars of finance and economics in Nigeria and other countries of
the world will find the study helpful for future financial and economic
planning. The result of the study will create good avenue and assist other
developing countries in the design, implementation, monitoring and evaluation
of their annual budgets.
This
study will be of immense benefits to different interest groups such as
government, investors, researchers etc.
It
will suggest ways by which the government can develop an effective method of
internally generated revenue.
It
will provide useful insight into the mode of expenditures on various
infrastructural facilities in the Nigerian economy. The study will be
beneficial to government and hence it will help the public and authorities in
making adequate financial planning, forecast as well as amending the needed
areas in public expenditures. Also, it will encourage government in funding the
problems of income inequality. Individuals and groups also will benefit from
this study as it will provide an avenue for better public participation in
budget and budgetary implementation. Lastly, the findings from this study shall
be an addition to the existing knowledge on this topic by providing a new
window for further research.
1.9 OPERATIONAL DEFINITION
OF TERMS
In
analytical appraisal of any phenomenon, it is academically, practically and
appropriate to define some key concepts and terms relating to such phenomenon
prior to actual analysis. The researcher shall hereby define some key terms and
concepts in the context of their usage in this research work.
1.
Liberalization: Is the
breaking down of national barriers to economic activities, resulting in greater
openness and integration of countries in the world markets.
2.
Auto correlation: Is the
degree of correlation between the values of the same variables across different
observation in the data. It is also correlation between the elements of a
series and others from the same series separated from them by a given interval.
3.
Skewness: Is a measure of
symmetry or more precisely, the lack of symmetry. A distribution, or data set
is symmetry if it looks the same to the left and right of the centre point.
4.
Kurtosis: Is a measure of
whether the data are heavy-tailed or light tailed relative to a normal
distribution.
5.
Platykurtic: Is
distribution with kurtosis less than 3. It means the distribution produce fewer
and less extreme outliers than does the normal distribution.
6.
Leptokurtic: Is
distribution with kurtosis greater than 3.
7.
Durbin Watson (DW): Is
statistical test for autocorrelation in the residents from a statistical
regression analysis. The DW will always have a value between 0 and 4. A value
2.0 means that there is no autocorrelation detected in the sample.
8.
Growth: It is defined as
the long term rise in capacity of economic goods to its population.
9.
Gross domestic
product: This measure the total output
produced. Within the domestic economy,
that is, home based resources
10.
Capital expenditure: It
refers to expenditure on new projects which have long term benefits.
11.
Recurrent expenditure: It
is an expenditure of short term and recurring items.
12.
Fiscal policy: Is defined
as the use of government expenditures and taxation as instruments to be
manipulated in order to exert a positive influence on the economy in terms of
achieving the objectives of macroeconomic expectation.
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