Re-Engineering Public Expenditure Patterns for Economic Development in Nigeria

Abstract

In recent times budget has been recognized as a worldwide tool for economic management. To this end there had been noticeable increase in government spending in virtually all sectors of the various economies due to increased demand for structures and facilities to enhance growth and development. The role and size of government expenditure had generated a great deal of controversy in macroeconomics. Some suggested that government expenditure beyond a certain limit of its core functions would have an adverse impact on economic. Some however, argued that increased government expenditure is a necessary condition for growth in output. In Nigeria, rising government expenditure has not translated to meaningful development because the rate of poverty is still very high, especially in the face of huge corruption and diversion of public funds for selfish purposes. The objective of the study was to first, analyze the impact of public consumption, private investment, public investment and total expenditure on economic growth. Secondly, through the use of the cointegration tests examine the nature of the relationship between economic growth and government consumption, government investment, private investment and total expenditure. Thirdly, determine the causal relationship, if any between economic growth and public expenditure on one hand and public expenditure and private investment on the other by conducting causality tests. The data span is from 1977 – 2008.The findings revealed that private investment and public investment positively impact on economic growth while total expenditure and public consumption impact negatively on economic growth. Also, a long run relationship exists between economic growth and public consumption, private investment, public investment and total expenditure. Again a unidirectional causality existed between economic growth and total expenditure, while there was no causal relationship between private investment and public investment in Nigeria. It is recommended that government should focus on spending on infrastructures and human capital and there is the need for practical complementarities between the private sector and public sector.