This study evaluates the effect of government expenditure on economic growth in Nigeria using time series data of 15 years (2004-2018). The variables used for the study include
recurrent expenditure, expenditure on highways, safety costs, education costs as the independent variables and real GDP as the dependent variable. Four objectives were formulated for the study and four hypotheses were also prepared in line with the objectives. Ex-post-facto research design was employed and the time series data was generated and analysed using regression analysis, Autoregressive Distributed Lagged (ARDL) testing technique and Error Correction Model-based, Granger Causality, unit root test, and co-integration to examine the long run causal effect relationship that exist between
government expenditure and economic growth in Nigeria. The study finds that government expenditure on highway, and expenditure on safety has positive significant effect on economic growth in Nigeria at 5% and 1% levels respectively, government recurrent expenditure has positive and no statistical significant on economic growth, while government expenditure on education has negative and no significant effect on the economic growth in Nigeria. The study recommends among others that Government should increase its expenditure on capital project as this will provide the needed infrastructure that can enhance the private sector productivity thereby improve economic growth.
CHAPTER ONE INTRODUCTION
The government essentially performs two functions viz protection which entails creation of the rule of law and enforcement of property rights: and provision of public goods and services which include roads, education, health and electricity (Economics Online, 2015). Fundamentally, Usman and Ijaiya (2010) argue that economic growth can be fostered through government expenditure on infrastructures such as roads, communications and power generation since it reduces the cost of production, increases private Sector investment and eventually profitability of firms. Loto (2011) on the other hand postulates that better standards of living to the citizens of a country will be achieved through the development of key Sectors of the economy such as health, housing, education and agriculture, as these Sectors are important in stimulating the economy of a country by addressing the nation‟s foremost needs, hence bringing about sustainable development.
Indeed, meaningful government expenditure to key Sectors of the economy can bring government services closer to the people and can enhance equity and reduce poverty; but the productivity of these allocations depends on the efficiency of resource allocation within these Sectors (Olopade & Olopade, 2010). This thinking is consistent with the agency theory that requires the agent to allocate and utilize resources efficiently and effectively to maximize shareholders wealth. In this case, the agent is the government represented by Ministries, Departments and Agencies (MDAs) while the principal is the citizenry (Leruth & Elisabeth, 2006).
Background to the Study
Government expenditure has remained one of the most important macroeconomic management tool for
the controlling of the level of demand and money supply in an economy. If well managed, it can put an
economy on the path of sustainable growth and development. Government in any society performs two
major/main functions namely: protection and provision of basic infrastructure/amenities (Abdullah,
2010). The protection function of the government consists of the
creation of the rule of law and
enforcement of rights which help minimize risk of criminality and external aggression. Under the
provision of basic infrastructure/amenities, the function includes the provision of good health facilities,
education, power, agriculture, and transportation, build bridges, road etc. performing both functions, the
government is required to spend huge amount of resources, especially in nations where the level of these
infrastructure/amenities is low like in Nigeria. The Nigeria government operates a cash budget system
where expenditure proposal are anchored on projected revenue. To meet this
projected revenue,Government has three policy options; to borrow, to tax or both. Any of those options chosen has direct
implication on the economic growth.
Government spending on public infrastructure can impact directly and indirectly on the macro economy
(Aschauer, 1989 cited in Schmidheiny, 2012). In line with this, Munnell (1992) believe that a strong
positive relationship exists between the level of output and capital expenditure by government. While
Brülhart, Jametti, and Schmidheiny (2012); identified three specific types of government spending that
can lead to economic growth hence they are considered as productive: spending on Education, highways
and safety. These spending categories are said to improve the productive capacity of the economy.
