Government Expenditure and Economic Growth in Nigeria: Aggregate Level Analysis using the Bound Test Approach

Abstract

Economists have divergent views on the relationship between public expenditure and economic growth. The pro-market viewpoint argues that large government expenditure is a source of economic instability and has negative effect on economic growth. The anti-market view, on the other hand, stresses positive effect of government spending on economic growth. Stimulated by unresolved debates on the precise relationship between government spending and economic growth, and continuous growth in government spending, this study employed modified and extended aggregate production model to examine the effects of government expenditure at its’ aggregate level on economic growth in Nigeria for the period (1981-2018) using bound test (ARDL) approach. The co-integration result indicates the existence of long-run relationship between total government expenditure (LTGE) and economic growth in Nigeria. ARDL results show that total government expenditure (LTGE) impacted positively on economic growth in Nigeria in line with Keynesian theory. The granger causality test result indicates the existence of uni-directional causal relationship from LGDP to LTGE for the observed period, in line with Wagner’s theory. It is recommended that there should be proper utilization of public fund in the provision of security and critical infrastructure especially electricity supply and road infrastructure which are precursors to effective economic performance. Public fund should be properly managed to ensure accountability, transparency and fiscal responsibility in carrying out public assignment. It is believed that if corruption is tackled in the country, more public fund will be freed for development and public expenditure would impact more on the economic performance, hence, the fight against corruption in the country should be frontally confronted. Public institutions charged with the responsibility of handling corruption matters in the country should be overhauled and strengthen to ensure timely and proper handling of corruption matters.