Examining the Relationship between Government Spending and Economic Growth in Nigeria: An Application of Wagner’s Law Hypothesis

Abstract

This paper examined the relationship between Government Spending and Economic Growth in Nigeria with special reference to Wagner’s Law Hypothesisusing annual data that spanned from 1981 to 2022. By examining the relationship between governments expenditure and the annual growth rate of GDP. The study sourced its data from the Central Bank of Nigeria’s statistical bulletin 2022, and first, examines the stochastic properties of the variables through the Augmented Dickey-Fuller (ADF) test. The result reveals that, the data series are stationary at level. The hetero skedasticity test through Breusch-Pagan-Godfrey and Serial Correlation through the Breusch-Godfrey LM Test were performed and the long-run relationship between the variables has been examined through regression model (OLS). The result of the model reveals that government expenditure are significant in explaining GDP, this implies that government expenditure and GDP have a statistically significant long-run relationship, and thus, concluded in support of the validity of Wagner’s law for the Nigerian economy. It’s therefore, recommended that the Nigerian government should step up its effort in ensuring proper management of its resources and invest more inlabor-intensive sectors like agriculture.