The Contribution of Government Expenditure on Economic Growth of Nigeria Disaggregated Approach

Eugene Iheanacho

doi:10.4172/2162-6359.1000369

Abstract

This study examines the long and short run relationship between public expenditure and economic growth in Nigeria over the period of 1986-2014, using Johansen cointegration and error correction approach. Two components of public sector expenditure and gross capital formation ratio are derived from Cobb Douglas production function. The result shows recurrent expenditure is the major driver of economic growth in Nigeria. Controlling for the influence of non-oil revenue, this study shows a negative and significant long run relationship between economic growth (rgdpc) and recurrent expenditure coexists with a positive short run relationship, highlighting the dual effects of recurrent expenditure on economic growth in Nigeria. For the capital expenditure, this study documents negative and significant long run effect of capital expenditure on economic growth in Nigeria. The variance decomposition confirms the collective contribution of public expenditure on economic growth. The finding of this study have some policy implications for policyholders because it could be guide on effective utilization of public funds on rightful projects rather than spending it on enormous projects that will not translate into meaningful growth of the economy

Highlights

For decades the relationship between public sector expenditure and economic growth has continued to occupy series of debate among researchers and policy makers
The findings of this study suggest that 1% increase in the rate of domestic investment increases economic growth in Nigeria by about 0.7%
Controlling for the possible influence of non-oil revenue, this study examines the long run and short run relationship between public expenditure proxy by and economic growth in Nigeria using Johansen cointegration approach over 1986-2014

Summary

Introduction

For decades the relationship between public sector expenditure and economic growth has continued to occupy series of debate among researchers and policy makers. The common consensus among the researchers is that public sector expenditure has been identified as an important instrument which the government uses to influence the performance of the economy [1,2,3]. Salawu observed that public expenditure is the expenses incurred by the government for the maintenance of itself, the economy and the society at large. The study articulated that public expenditure is centered on expenses contracted on government own maintenance for the growth and stability of the general economy. Another study by Anyanwu [5] noted that public expenditure is that part of fiscal tools that embraces and puts to use judiciously, all revenue generated from all sources, for the growth and installed system in the economy

Methods

Results

Conclusion