THE EFFECT OF GOVERNMENT EXPENDITURE ON THE ECONOMIC GROWTH IN NIGERIA

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THE EFFECT OF GOVERNMENT EXPENDITURE ON THE ECONOMIC GROWTH IN NIGERIA

ABSTRACT

This study examines the impact of government expenditure on economy growth in Nigeria. In the light of the empirical review and other discussions, a number of questions arose as to whether there is significant relationship between government investment expenditure and economic growth of Nigeria, there is significant relationship between government consumption expenditure and economic growth of Nigeria as well as to determine if there is significant relationship between government health expenditure and economic growth of Nigeria. Using the Ordinary Least Square (OLS) regression technique with the aid of computer software, for a 1977 – 2010 time series data, the empirical findings revealed among other things, that government investment expenditure has a significant impact on Nigeria’s economic growth. The study recommends, that the government should ensure that government should encourage the education and health sectors through increase funding, as well as ensuring that the resources are properly managed and used for the development of education and health services.

TABLE OF CONTENTS

Title

Table of Contents

Abstract

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study

1.2 Statement of the Research Problem

1.3 Objectives of the Study

1.4 Research Hypotheses

1.5 Scope of the Study

1.6 Significance of the Study

1.7 Limitations of the Study

References

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

2.2 Conceptual Framework

2.3 Theories of Government Expenditure

2.4 Prior Empirical Review

2.5 Public Expenditure Policies In Nigeria

2.6 An Overview of Government Expenditure

2.7 Determinants of Government Expenditure

References

CHAPTER THREE: RESEARCH METHODOLOGY

3.2 Introduction

3.3 The Research Design

3.4 Sources of Data Collection

3.5 The Population of the Study

3.6 Model Specification

3.7 Method of Data Analysis

References

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Introduction

4.2 Descriptive Statistics

4.3 Correlation Analysis

4.4 Regression Analysis

4.5 Test of Hypotheses

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

5.2 Summary of Findings

5.3 Conclusion

5.4 Recommendations

Bibliography

Appendix

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Over the past decades, the public sector spending has been increasing in geometric term through government various activities and interactions with its Ministries, Departments and Agencies (MDA’s), (Niloy et al. 2003). Although, the general view is that public 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 public expenditure will determine the pattern and form of growth in output of the economy (Taiwo, and Abayomi, 2011).

The structure of Nigerian public 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 roads, airports, education, telecommunication, electricity generation etc., are referred to as capital expenditure. One of the main purposes of government spending is to provide infrastructural facilities (Taiwo and Abayomi, 2011).

Nurudeen and Usman (2010), added that, in Nigeria, government expenditure has continued to rise due to the huge receipts from production and sales of crude oil, and the increased demand for public (utilities) goods like roads, communication, power, education and health. Besides, there is increasing need to provide both internal and external security for the people and the nation. Available statistics, according to Nurudeen and Usman (2010) show that total government expenditure (capital and recurrent) and its components have continued to rise in the last three decades. For instance, government total recurrent expenditure increased from N3, 819.20 million in 1977 to N4, 805.20 million in 1980 and further to N36, 219.60 million in 1990. Recurrent expenditure was N461, 600.00 million and N1, 589,270.00 million in 2000 and 2007, respectively. In the same manner, composition of government recurrent expenditure shows that expenditure on defense, internal security, education, health, agriculture, construction, and transport and communication increased during the period under review. Moreover, government capital expenditure rose from N5,004.60 million in 1977 to N10, 163.40 million in 1980 and further to N24,048.60 million in 1990. The value of capital expenditure stood at N239, 450.90 million and N759, 323.00 million in 2000 and 2007, respectively. Furthermore, the various components of capital expenditure (that is, defense, agriculture, transport and communication, education and health) also show a rising trend between 1977 and 2007.

The effect of government spending on economic growth is still an unresolved issue theoretically as well as empirically. Although the theoretical positions on the subject are quite diverse, the conventional wisdom is that a large government spending is a source of economic instability or stagnation. Empirical research, however, does not conclusively support the conventional wisdom. A few studies report positive and significant relation between government spending and economic growth while several others find significantly negative or no relation between an increase in government spending and growth in real output.

In the light of the above, this study intends to examine the impact of government expenditure on economic growth of Nigeria.

1.2 STATEMENT OF THE RESEARCH PROBLEM

In the last decade, Nigerian economy has metamorphosed from the level of million naira to billion naira and postulating to trillion naira on the expenditure side of the budget. This will not be surprising if the economy is experiencing surplus or equilibrium on the records of balance of payment. Better still, if there are infrastructures to improve commerce with the system or social amenities to raise the welfare of average citizen of the economy. All these are not there, yet we always have a very high estimated expenditure. This indicates that something is definitely wrong either with the way government expands budget or with the ways and manners it has always been computed.

Unfortunately, the rising government expenditure has not translated to meaningful growth and development, as Nigeria ranks among the poorest countries in the world. In addition, many Nigerians have continued to wallow in abject poverty, while more than 50 percent live on less than US$2 per day. Couple with this, is dilapidated infrastructure (especially roads and power supply) that has led to the collapse of many industries, including high level of unemployment (Nurudeen and Usman, 2010).

Moreover, macroeconomic indicators like balance of payments, import obligations, inflation rate, exchange rate, and national savings reveal that Nigeria has not fared well in the last couple of years.

Against this backdrop, the following research questions are raised:

1. Is there significant relationship between government investment expenditure and economic growth of Nigeria?

2. Is there significant relationship between government consumption expenditure and economic growth of Nigeria?

3. Is there significant relationship between government health expenditure and economic growth of Nigeria?

1.3 OBJECTIVES OF THE STUDY

The broad objective of the study is to examine the impact of government expenditure and economic growth of Nigeria.

The specific objectives are:

1. To determine if there is significant relationship between government investment expenditure and economic growth of Nigeria.

2. To examine if there is significant relationship between government consumption expenditure and economic growth of Nigeria.

3. To verify if there is significant relationship between government health expenditure and economic growth of Nigeria

1.4 RESEARCH HYPOTHESES

The following hypotheses will be tested in the course of this study.

Hypothesis I

Ho: There is no significant relationship between government investment expenditure and economic growth of Nigeria.

H1: There is a significant relationship between government investment expenditure and economic growth of Nigeria.

Hypothesis II

Ho: There is no significant relationship between government consumption expenditure and economic growth of Nigeria.

H1: There is a significant relationship between federal government consumption expenditure and economic growth of Nigeria.

Hypothesis III

Ho: There is no significant relationship between government health expenditure and economic growth of Nigeria.

H1: There is a significant relationship between government health expenditure and economic growth of Nigeria.

1.5 SCOPE OF THE STUDY

This study is undertaken to examine the impact of government expenditure on economic growth. In term of time series, a period of thirty-three years is used (i.e. 1977 to 2010) as means of assessing the impact of government expenditure on the growth of Nigerian economy. It is hoped that this will help to achieve the stated objective of the study.

1.6 SIGNIFICANCE OF THE STUDY

It is expected that this study would consolidate existing literature on the issues surrounding the relationship between government expenditure and economic growth. The study would also facilitate the examination of the effects of government expenditure and economic growth in Nigeria and thus boosting the empirical evidence from Nigeria.

Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies and policy simulation with respect to the selected variables examined in the study.

The result of the study would be of benefits to education analysts, and institutions in examining the effectiveness of government expenditure and economic growth. It will also be useful in stimulating public discourse given the dearth of empirical researchers in this areas from emerging economies like Nigeria.

Finally, it would also add to the available literature on the areas of study while also providing a platform for other researchers who may want to further this study.

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