Recurrent Expenditure-Growth Nexus: Macro-finametric Evidence from Nigeria

Abstract

The study examined the impact of government recurrent expenditure on economic growth within the period of 1981 to 2017. The data collected from Central Bank of Nigeria (CBN) Statistical Bulletin were analyzed with Augmented Dicky Fuller unit root test, Johansen Coin tegration Test, Vector Autoregressive Model, VAR Granger Causality/Block Exogeneity Wald Tests and others. The result of Augmented Dicky Fuller unit test showed that economic growth proxied by Gross Domestic Product and all recurrent expenditure variables are integrated at order one. Johansen Cointegration Test revealed that there exist long run relationships between Gross Domestic Product and Recurrent Expenditure variables. Vector Autoregressive test and Ordinary Least Square revealed as follows; that economic growth proxied by Gross Domestic Product reinforces itself, that government recurrent expenditure on administration exerted negative and significant impact on economic growth within the period of the study, while government recurrent expenditure on both social and community services, economic services and transfers impacted positive and significantly on economic growth. VAR Granger Causality/Block Exogeneity Wald Tests found that all components of government recurrent and capital expenditure structure and Gross Domestic Product granger cause each other with unidirectional effect, except government recurrent expenditure on social and community services that has a bidirectional effect or feedback effect. Therefore, the researchers are of the view that government should adequately fund economic services and social and community services due to its positive contribution to the expansion of the economy.