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IMPACT OF GOVERNMENT
EXPENDITURE ON 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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