Government expenditure and economic growth nexus: How valid is Wagner’s law in the Nigeria situation?

Abstract

This study specifically aims at verifying if Wagner’s law is consistent with the Nigerian situation by adopting the ARDL method. Findings from the estimation prove that Wagner’s law is a fallacy in Nigerian experience. In contrast, the Keynesian theory of national income is applicable to the economy of Nigeria, as demonstrated by the strong positive impact of government expenditure on economic growth. Equally important, FDI inflows demonstrate a strong positive relationship with the economic growth of Nigeria. Note that Nigeria went into recession recently and is now going through the recovery stage. This, in line with the findings, calls for the adoption of an expansionary fiscal policy in order to stimulate aggregate demand and, by implication, improve output performance in the economy. Most importantly, the increased government spending should be tailored toward the viable sectors with close monitoring to avoid diversion of resources through corruption. Efforts should also be made toward attracting foreign companies to invest in the economy.