Disaggregated Government Expenditure and Economic Development in Nigeria: An Econometric Analysis. (1981-2020)

Abstract

This study empirically examined disaggregated government expenditure and economic development in Nigeria using data spanning between the periods 1981 to 2020 by employing the use of Augmented Dickey Fuller test, Co integration test and Vector Error Correction technique (VECM) as the statistical techniques of analysis. From the study, the error correction model is -0.709 and it shows that about 70.9 percent of the short run shocks in Human Capital Development (HDI) in Nigeria are adjusted annually and such high speed of adjustment is very fundamental in the process of policy conception, formulation and implementation. This aforementioned finding revealed that there is a long run equilibrium relationship between human development index and various government expenditures variables as shown by the error correction model which is very high, rightly signed and significant. Also, the results show that in the long run that government expenditure on social security, government expenditure on education, health expenditure and agricultural expenditure have a positive and significant impact on human development index while government expenditure on infrastructure has a negative but significant effect on human development index in Nigeria. Furthermore, the short run estimates show that government expenditure on infrastructure (GEI) has a significant effect on HDI at lag period one and two while government expenditure on education and government expenditure on agriculture were found to be significant at lag period one respectively. Conversely, government expenditure on social security and government expenditure on health have a direct and insignificant effect on human development index in Nigeria. By implication, the findings indicate that government spending play a crucial role in the development of human capital in Nigeria. The study therefore concludes that there is need for federal government to be consistent in allocation and redistribution of government spending to various key sectors of the economy such as education, health, agriculture and defence which will invariably contribute positively and significantly to the human development in the country. Finally, there is need to ensure that federal government appropriate more funds to these key sectors annually.