Public expenditure and inflation rate in Nigeria: An empirical analysis

Abstract

The study investigated the impact of public expenditure on inflation rate in Nigeria. Time series data spanning from 1981 to 2021 was sourced from the Central Bank of Nigeria statistical bulletin. The ARDL bounds testing approach to co-integration was used to analyse the data. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were utilized to address the main objectives of the study. The estimated short run coefficient result revealed that one period lag of CAP has a negative and insignificant impact on inflation rate. The speed of adjustment for correcting disequilibrium from the previous year to equilibrium in current year is 19.7 percent as shown by the coefficient of ECM. The long run result showed that capital expenditure has no impact on inflation rate while recurrent expenditure has a positive and significant impact on inflation rate. The result also showed that debt servicing has a positive and insignificant impact on inflation rate. Based on these findings, the study recommended that government should reduce its rate of borrowing and also ensure that borrowed funds and greater part of its expenditures are strictly channeled to productive ventures that are capable of transforming the economy.