Macro-Economic Variable and Its Behavioural Effect on Government Spending in Nigeria ( a ) ( VECM Analysis )

Abstract

The gross objective of this research work is to ascertain the behavioural effect of some key macro-economic variables to increase in government spending over a period of 1981 to 2014 using vector error correction model and ganger causality test as an estimation tools for justification. From the output of the major estimate, we found that the behavioural effect of macro-economic variables to increase in government spending are multidimensional such that some macro-economic variables such as (BOT and INTR) are a significant but inversely related to total government spending while others maintain a direct flow. The economic implication of negative balance of trade is unfavourable balance of trade which signifies that Nigerians import more in monetary term than it’s export while the negative value of the interest rate is in line with our apriori expectation. Consumer price index is positive and statistically significant which suggest double jeopardy. That is, consumers are confident to buy more when the purchasing power of naira has declined and finally, we observe significant level of unemployment. One major factor that could be responsible for this abnormities is not far from the fact that larger quantum of government spending in Nigeria is massively allocated toward recurrent expenditure while few percentage is injected into capital expenditure which amount to highly and ever teaming unemployment rate over the years. Sequel to the above findings, the study recommends that emphasis be made on productive and manufacturing sectors of the economy for massive output and encourage exportation as it is a symbol of favorable balance of trade which will further showcase government effort and help reducing the ever teaming unemployment rate in Nigeria.