ABSTRACT
The study investigates the impact of public capital expenditure on Selected Economic Performance Indices the period 1981-2015. The data for the study were sourced from various issues of the Central Bank of Nigeria’s statistical bulletin. The data was subjected to unit root test using Augmented Dickey fuller (ADF) approach to ascertain the time series properties. Descriptive statistics was used to assess the socioeconomic characteristics of the variables. Due to the mixed order of integration witnessed in the unit root, ARDL- Autoregressive Distributed Lag approach was used for cointegration and regression analysis. The results found that Public capital expenditure has negative and statistically significant (tcal = -2.6996) impact on the Nigerian economy proxied by GDP growth rate. Also, Public capital expenditure is negatively signed and statistically significant (tcal = -2.903) in influencing Inflation Rate (INFR), while Public capital expenditure has no (tcal = 1.36925) statistically significant influence on the Poverty Rate (POVR). The findings implies that capital expenditures in Nigeria has the potential to accelerate economic performance when given the adequate attention it deserves. Sequel to the findings, this study recommends that Government should ensure that capital expenditure are properly managed in a manner that will raise the nation’s productive capacity and accelerate economic growth. Furthermore, Nigerian Government should increase its investment in production sectors and encourage skillful and willing citizens to participate since this would reduce the expenses being incurred on business as a result of low currency value and raise the profitability of firms. Also, there should be more capital expenditure on the following sectors - education, electricity, economic services, health sectors through increased funding, as well as ensuring that the resources are properly managed.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgments v
List of Tables vii
Abstract ix
CHAPTER 1: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement
of the Problem 3
1.3 Objectives of the Study 5
1.4. Research Questions 6
1.5.
Research Hypotheses 6
1.6.
Scope of the Study 6
1.7. Significance
of the Study 7
CHAPTER 2: REVIEW OF RELATED LITERATURE
2.1
Conceptual Framework 8
2.1.1 Public expenditure, concepts 8
2.1.2 Compositions of public expenditure in Nigeria 10
2.1.3 Trends in federal government expenditure in
Nigeria 12
2.1.4 Overview
of Nigerian public sector 12
2.1.5 Public
expenditure control 14
2.1.6
Fiscal policy on economic development 15
2.1.7
Economic growth 17
2.1.8 Public
capital expenditure 19
2.2
Theoretical Framework 20
2.2.1
Musgrave theory of public expenditure 22
2.2.2
Peacock and Wiseman's theory of expenditure 22
2.2.3 Wagner’s theory of increasing state of activity 23
2.2.4
Keynesian theory 25
2.2.5 Endogenous growth theory 25
2.2.6
Solow’s theory 26
2.2.7
Theory of increasing public expenditure 26
2.3 Empirical Review 27
2.4 Summary of Reviewed Literature 38
CHAPTER 3: METHODOLOGY
3.1 Research Design 40
3.2 Area of Study 40
3.3 Sources of Data 40
3.4 Validity of Data 41
3.5 Description of Research Variables 41
3.6 Dependent
variables 41
3.6.1 Independent variables 41
3.7 Technique
for Analysis 41
3.8 Model
Specification 42
CHAPTER 4: RESULTS AND DISCUSSION
4.1 Economic
Performance Indices 43
4.2 Data Analysis 44
4.3
Descriptive Statistics 46
4.4 Stationarity Properties of the
Variable used in the Analysis 47
4.5
Hypotheses Testing 55
4.5.1
Hypothesis 1 55
4.5.2
Hypothesis 2 55
4.5.3 Hypothesis
3 56
4.6 Discussion 56
CHAPTER 5:
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
5.2 Conclusion 58
5.3 Recommendations 59
References 60
Appendix
LIST OF TABLES
4.1 Economic performance indices 44
4.2 descriptive
Statistics based on the variables used in the analysis 46
4.3 result
of unit root test for unlogged explained and explanatory
variable 48
4.4a cointegration analysis of GDP growth
model 49
4.4b long run cointegrating form of GDP growth
model 49
4.4c regression
result of the GDP growth model 50
4.5 regression result of the effect of public
capital expenditure
on inflation rate in Nigeria 52
4.6 regression result of the effect of public
capital expenditure on
inflation rate in Nigeria 54
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Counting growth in public
capital expenditure in developing countries and also the industrialized
countries is a contemporary common feature which collaborates with famous
Wagner’s Law of expending state activities. “The traditional role of public
capital expenditure suggests that it shapes the course and determines the state
of economic development, and through spending, government preserve and promote
national identity, supply infrastructure for developing both the course of
economic performance, the distribution of its benefits and provide social
services to meet its population basic needs’’(Tsauni, 2007).
Scholars
in the economic literature have continued to experience controversies among
themselves on the relationship between public capital expenditure on the
Nigerian Economy and its nature on the impact being inclusive. The need for
governmentto spend more in the provision of public goods has been emphasized in
Wagner theories, Musgrave theory of increasing state activities and the
Keynesian theory of deficit financing (Obi 2011). Keynesian on its own is of
the view that, government through borrowing of money from the private sector and
then returning it to them through various spending programs could reverse the
economic downturn of a nation. Furthermore, suggestions from other studies
shows that an increase in Nigerians socio-economic and physical infrastructural
expenditure, impact on long-run growth rate. For instance, expenditure on
health and education of a government can raise its productivity of labor and then
increases its growth on national output. Similarly, infrastructural expenditure
like roads and power reduces production cost, increases profitability and investment of firms in the
private sector thus enhancing good performance of a government (Barro,1990,Roux,
1994, Okojie, 1995, Morison and Schwartz, 1996). In Nigeria today, public capital expenditure
is on the increase owing to the huge demand for production of crude oil and it
sales, increase in demand for goods (utilities) such as roads, communication,
power, health and education. Moreover, there is increasing need by the people
and Nation for provision of internal and external securities. Unfortunately,
Nigeria still ranks one of the poorest countries even with the rising of its
capital expenditure which has not translated into any meaningful development.
More so, there are dilapidated infrastructures such as power supply and roads
that has brought about many industries collapse, increase in unemployment rate and
abandoned elephant projects. Moreover, some macroeconomic indicators show that
Nigeria has not fared well in the last few years. These indicators include: balance
of payments, import obligations, inflation rate, exchange rate and national
savings. This necessitates how important it is to determine whether the Nigerian
public capital expenditures behavior has a major component of its national
income, which means that, the key determinant factor of an economy and its
performance is the public capital expenditure of Nigeria. However, to improve
the economic welfare of the people and facilitate services across all sectors
of the Nation so as to stimulate its development, government depends solely on
physical and capital intensive infrastructure (Deverajan. S.2000). whatsoever
it is, the relationship between public capital expenditure on the Selected
Economic Performance Indices cannot be over emphasized. The mismatch between the
performance in Nigeria and the increase in capital expenditure has raised a
critical question on its role in promoting the economy’s development. Some
authors contend that the link between public capital expenditure and its
performance is weak or none existence while others have reported varying degree
of causalityof their relationships in Nigeria (Onakoya, Adeyemi and Somoye
2012). Therefore this thesis seeks to examine public capital expenditure and
its impact on Selected Economic Performance Indices from (1981-2015). The
economic performance indices for the study are – GDP growth rate, Inflation
rate and poverty reduction rate. The relevance of the study emanates from the
dire need to assess the economic performance of Nigeria especially within the
recent decades of various financial and monetary policies which has lead to the
current economic situation in the nation. The availability of data led to the
choice of this period. The researcher was able to get data for the analysis in
this period.
1.2 STATEMENT OF THE PROBLEM
Keynes
expressed the view that the fundamental cause of depression in an economy is
lack of spending, thus in Keynesian terms, “budget deficits were viewed as
positive instruments to show aggregate income to stimulate all sectors to spend
more. Nevertheless, ascapital expenditure determines economic development, thus
economic problems are most times caused by imprudent capital expenditure. In a
situation where capital expenditures are not properly managed, there is the
tendency for the creation of distortions which hinder, rather than promote
economic performance and development. This seems to be the situation in Nigeria,
where despite the reasonable volume of resources that the country earned during
the oil boom period and marvelous jump in capital expenditure during same
period, there was little to account for it. An unfortunate aspect of this
process is that it has become a re-occurring feature and bulk ofcapital
expenditure seems not to be productive.
The
persistent poor economic performance of the Nigerian economy since the early
1980s has raised genuine concern about the efficacy and timeliness and
appropriateness of the macroeconomic framework forming the background of the
policy constituents (Ugwuh, 2002)
as cited in Okafor(2010).
A number of prominent authors especially of
the neoclassical school have argued that increased capital expenditure may hold
up the aggregate performance of the economy like Nigeria in that, in a bid to
finance rising expenditure, government may have to increase taxes and/or
borrowing. On the other hand, increased government borrowings (from financial
institutions like banks) required to finance its capital expenditure may
crowd-out the private sector and thus reduce private investment. The argument
advanced by Sachs(2006) was that among the developed countries, those with high
rates of taxation and high social welfare spending perform better on most
measures of economic performance compared to countries with low rates of
taxation and low social outlays. Hayek (1989) however countered that high
levels of government spending through social welfare engender fairness,
economic equality and international competitiveness. This is also supported by
Siddha (2007) who concurred by arguing that countries with large public
expenditure have grown more slowly. In Nigeria, capital expenditure has always
been on the increase due to the flow of revenue from production and sales of
crude oil. This is however accompanied by huge demand for capital expenditure
such as roads, electricity, and education, health, external and internal
security and so on. Within this context, statistics has it that government capital
expenditure feature more on education, internal and external security, health,
agriculture, construction, and transport and communication, following this
scenario, the huge government capital expenditure has not translated into
reasonable development because the country is still ranked one of the poorest
in the world. Also, there has been serious collapse of many industries partly
because of breakdown in infrastructure which has resulted in high rate of
inflation and poverty. On the other hand, study conducted by Anyanwu (1997)
noted that excessive capital expenditure in Nigeria results to
over-indebtedness which in turn contributes to debt crises, high inflation,
poor investment and growth performance. Furthermore, in order to sustain
interest and power, government sometimes increases capital expenditure in
unproductive projects which can be done by the private sectors. This irrational
activity often produces misallocation of resources and impedes the performance
of national output .The studies conducted by Laudan, 1986, Baro, 1991, Engen,
Skinner, Folster, and Henrekson, 2001 asserted that increasing capital
expenditure may slowdown overall performance of the economy. A closer view of
these various study reveals that the studies focused on developed economies with
little focus on developing nations as Nigeria. Also sequel to the recent
economic situation in Nigeria, there is a need to ascertain the relevance of
public capital expenditure in Nigeria. The study therefore cover this gap as it
focused to examine the Impact of Public Capital Expenditure on Selected
Economic Performance Indices.
1.3 OBJECTIVES OF THE STUDY
This study aims at examining the
effect of public capital expenditure on selected economic performance indices
in Nigeria. Specifically, the objectives of the study include;
1.
To establish the effect of public capital expenditure
on the GDP Growth Rate of Nigeria.
2. To determine the effect of public capital expenditure oninflation rate in Nigeria,
3. To determine
the impact of public capital expenditure on poverty rate in Nigeria.
1.4.
RESEARCH QUESTIONS
This study has been structured to answer the following
questions:
1.
What is the effect of public capital expenditure on
the GDP growth rate of Nigeria?
2.
What effect has public capital expenditure in Nigeria on the
country’s inflation rate?
3.
To what extent does public capital expenditure
influence poverty rate in Nigeria?
1.5.
RESEARCH HYPOTHESES
In order to achieve the above stated
objectives, the following hypotheses have been formulated for the research
study.
H01:
Public
capital expenditure does not have significant impact on the GDP growth rate of Nigeria
H02: Public capital expenditure does not have significant effect on inflation rate in Nigeria
H03: Public capital expenditure does not
have significant impact on poverty rate in Nigeria.
1.6.
SCOPE OF THE STUDY
The
increase in public capital Expenditure and its impact on selected economic
performance indices in Nigeria is examined with data spanning from (1981-2015).
The selected period was due to the significance of the time which witnessed
various economic transformation policies targeted to accelerate the country’s
economy and reduce poverty. The study focuses on the impact of public capital
expenditure on selected economic performance indices in Nigeria, in the areas of Gross Domestic Product (GDP), government
capital expenditure, poverty rate, Real Exchange rate and inflation rate of
Nigeria for the period under study. Secondary data only were used due to the
nature of this research work. However, the study is limited to finding out the
impact of public capital expenditure on selected economic indices in Nigeria using
the various public capital expenditure components needed.
1.7.
SIGNIFICANCE OF THE STUDY
Nigeria as a developing country is
faced with the challenges of improving fiscal discipline, bringing resource
allocation in line with development priorities, creating an enabling
environment for public financial managers, and protecting due process.This
study will be significant to the following:
I.
Government: Policy makers in governments and their
economic advisers will benefit from this work as they will be well informed on
necessity of development as well as the fundamentals of economic policy
formulation
II.
Economic Analyst / accountants:
It will
provide some insight into the macroeconomic variables and their relationship
with public capital expenditure. Thus, it will allow for performance evaluation
of fiscal policies of governments. The study will also bring to fore the
various expenditure reforms for proper evaluation.
III
The academia: It will add to the body of literature on public capital expenditure, thus serving as reference material
or research material for research on macroeconomic policies and performance.
The work will also throw more light on the relationship between, investment,
economic growth, inflation rate and public capital expenditure.
IV
The Regulatory Authorities and other governmental agencies will find the
research work very useful in their policy formulation.
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