Abstract
Government expenditure is an essential instrument for achieving full employment, price stability, improved standard of living, economic growth and other macroeconomic objectives. However, questions regarding the efficacy of government expenditures to attain these objectives have continued to rise due to the alarming rate of unemployment, inflation, poverty and other socio-economic problems in Nigeria. This has called for the need to investigate the allocation of resources to some selected sectors and their resultant impact on the Nigerian economy. This study examined the effect of various components of Government Expenditures on Economic Growth in Nigeria for periods between 1981 and 2020. The analysis was based on Secondary data. The study adopted the Error Correction model and Granger Causality Test. The short-run model revealed that the components of government expenditures like recurrent expenditures on agriculture, health and education have an insignificant negative impact on economic growth. Recurrent expenditure on debt servicing and road and construction indicated a positive and negligible impact on economic growth. Concerning capital expenditures, government capital expenditures on social services were shown to have a negative and significant impact on economic growth. In contrast, government capital expenditures on economic services indicated a positive and insignificant impact on economic growth in Nigeria. In the long run, all the components of government expenditures employed showed a significant effect on economic growth. The research finding establishes no clear conclusion about whether Keynesian or Adolf Wagner's law is operational in Nigeria. The study concludes that the Nigerian economy is on the wrong path to sustainable growth and development. The study recommends that the government should increase its allocations to priority sectors like health, education, agriculture and infrastructures. Furthermore, the government should stimulate investment and output using monetary and fiscal policies to increase internally generated revenue and reduce government borrowing. Lastly, the study emphasises the need to improve government spending efficiencies, transparency in budgetary processes, and strict monitoring of government projects.
Highlights
Keynesian economics brought the government into the spotlight of economic affairs since the 1930s
To test for the presence or absence of unit root in the series used for the empirical study, the Augmented Dickey-Fuller (ADF) test was employed, and the results are as presented below
The study analysed the impact of various components of Government Expenditures on Economic Growth in Nigeria for periods between 1981 and 2020 by employing multiple techniques of econometrics analysis such as ADF Unit Root Test, Johansen Co-integration, Error Correction Model and Granger Causality Test
Summary
Keynesian economics brought the government into the spotlight of economic affairs since the 1930s. The market failed to achieve full employment. Authors [4] noted that the perceived failure of the market system to efficiently and equitably allocate economic resources for social and infrastructural development is one reason for government involvement in the economy. One of the primary instruments that the government use in regulating the economy is government spending. The instrument of government expenditure is used to achieve macroeconomic objectives like full employment, price stability and sustained economic growth. Authors [17] commented that government expenditure is a fiscal instrument that serves a valuable role in controlling inflation, unemployment, depression, the balance of payment equilibrium, and foreign exchange rate stability. Government spending is used to raise aggregate demand in periods of depression and unemployment, further stimulating employment and output [7]
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