Non-Linear Causal Links amongst Functional Recurrent Components of Government Spending and Nigeria’s Economic Growth

Abstract

This research work examined the relationship between components of government recurrent spending and economic growth in Nigeria. Government recurrent spending is split into four categories, namely: economic services, administration, transfers and social services. The aim is to isolate and place emphasis on their individual relationship with economic growth between 1981 and 2022. Within the VAR Toda-Yamamoto specification, nonlinear causal relationships were analysed using positive and negative shocks generated from the ARDL framework. Results from the empirical finding after unit root (all of order 1) and co-integration (at least one co-integrating vector) tests were carried out and indicated that administration has a causal relationship that is unidirectional with economic expansion. Also, all the functional components of recurrent government expenditures are jointly correlated to cause economic growth in Nigeria. These outcomes depict that Nigeria needs to increase its spending on all these functional components in order to have a better and robust growth and development. Capital projects like Ajaokuta Steel and the nation's refineries should also receive priority as it will indirectly increase the causal effects of recurrent components of government spending on the Nigeria’s economic growth.