Government Expenditure and Economic Growth Nexus: Empirical Evidence from Nigeria (1970-2012)

Abstract

This study has examined the impact of public expenditure on economic growth in Nigeria using time series data for the period 1970-2012. Secondary data were sourced from the CBN, NBS, journals, text books etc. The adopted model was fitted with three variables: real GDP, capital and recurrent expenditure. The tools of analysis were the ADF unit root test and ordinary least square multiple regression accompanied by pairwise Granger causality test. The major objective of this study is to analyse the impact as well as direction of causality between the fiscal variables and economic growth. All the variables included in the model are stationary at level. Empirical findings from the study show that there is positive and insignificant relationship between capital expenditure and economic growth while recurrent expenditure had a significant positive impact on economic growth. Also, Granger causality test demonstrates a unidirectional causality running from the fiscal variables to economic growth in validation of the Keynesian theory. Consequently, the study recommended more allocation of resources for recurrent purposes as well; government should establish the body that will monitor contract awarding process of capital projects closely, to guard against over estimation of project cost and stealing of public funds.