IMPACT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA
This research work investigate the impact of Government and its effect on economic growth. The objectives of the study is examine the relationships between capital as well as recurrent expenditures on gross domestic product (GDP) in Nigeria. The ordinary least square (OLS) and descriptive statistical techniques were employed based on time series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin from 2000 to 2015. The findings made from the OLS analysis revealed that both recurrent and capital expenditures determine 96.57% of the changes in GDP. The result also indicates that both recurrent and capital expenditures have significant influences on GDP, but capital expenditure has negative impact. Thus, overall government expenditure has significant impact on economic growth in Nigeria. It is recommended that government should promote efficiency in the allocation of developmental resources through emphasis on private sector participation, privatization commercialization. Government should not play policies with expenditure on public goods just to win cheap popularity. More so, the government consumption spending should be well coordinated by all aims of government to prevent “crowd out effect on government investment.
TABLE OF CONTENTS
CHAPTER ONE. 1
INTRODUCTION.. 1
1.1 Background of the Study. 1
1.2 Statement of the Problem.. 6
1.3 Objectives of the study. 7
1.4 Research Questions. 8
1.5 Research Hypothesis. 8
1.6 Significance of the Study. 9
1.7 Scope of the Study. 9
1.8 Limitations of the Study. 9
1.8 Organization of the Work. 10
1.7 DEFINITION OF TERMS. 11
CHAPTER TWO.. 12
LITERATURE REVIEW… 12
2.1 Introduction. 12
2.2 Conceptual Framework. 12
2.2.1 Importance of Government Expenditure. 12
2.1.2 Government Spending and Economic Growth. 13
2.1.3 Problems of Government Expenditure. 16
2.2 THEORETICAL FRAMEWORK.. 18
2.2.1 Theory of Public Expenditure. 19
2.3 EMPIRICAL LITERATURE REVIEW… 21
CHAPTER THREE. 24
RESEARCH METHODOLOGY.. 24
3.1 Introduction. 24
3.2 Research Design. 24
3.3 Method of Data Collection. 25
3.4 Data Analysis Technique. 25
3.5 Model Specification. 26
CHAPTER FOUR.. 28
DATA PRESENTATION AND ANALYSIS. 28
4.1 Introduction. 28
4.2 Data Presentation. 28
4.3 DATA ANALYSIS. 29
4.4 Interpretation of Results. 30
4.5 Discussion of Findings. 31
CHAPTER FIVE. 33
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION.. 33
5.1 SUMMARY.. 33
5.2 CONCLUSION.. 34
5.3 RECOMMENDATION.. 35
BIBLIOGRAPHY.. 36
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Over the past decades, the public sector spending has been increasing in geometric terms through government various activities and interactions with its Ministries, Departments and Agencies (MDA‟s). Although, the general view is that Government expenditure either recurrent or capital expenditure, notably in social and economic infrastructure can be growth-enhancing, the financing of such expenditure to provide essential infrastructural facilities government, including transport, telecommunications, water, electricity and sanitation, waste disposal, education and health-can be growth- retarding (for example, the negative effect associated with taxation and excessive debt). The size and structure of government expenditure will determine the pattern and form of growth in output of the economy (Taiwo, and Abayomi, 2011).
The structure of Nigerian government expenditure can broadly be categorized into capital and recurrent expenditure. The recurrent expenditure is government expenses of administration, such as wages, salaries, interest on loans, maintenance, etc., whereas expenses on capital projects like roads, airports, education, telecommunication, electricity generation etc., are referred to as capital expenditure. One of the main purposes of government spending is to provide infrastructural facilities (Taiwo and Abayomi, 2011).
Nurudeen and Usman (2010), added that, in Nigeria, Government expenditure has continued to rise due to the huge receipts from production and sales of crude oil, and the increased demand for public (utilities) goods like roads, communication, power, education and health. Besides, there is increasing need to provide both internal and external security for the people and the nation (Jelilov, 2015). Available statistics, according to Nurudeen and Usman (2010) show that total government expenditure (capital and recurrent) and its components have continued to rise in the last three decades. For instance, government total recurrent expenditure increased from N3,819.20 million in 1977 to N4,805.20 million in 1980 and further to N36,219.60 million in 1990. Recurrent expenditure was N461,600.00 million and N1,89,270.00 million in 2000 and 2007, respectively. In the same manner, composition of government recurrent expenditure shows that expenditure on defense, internal security, education, health, agriculture, construction, and transport and communication increased during the period under review (Jelilov, Gylych; Waziri, Fadimatu; Isik, Abdurahman, 2016). Moreover, government capital expenditure rose from N5,004.60 million in 1977 to N10,163.40 million in 1980 and further to N24,048.60 million in 1990.
The value of capital expenditure stood at N239,450.90 million and N759,323.00 million in 2000 and 2007, respectively. Furthermore, the various components of capital expenditure (that is, defense, agriculture, transport and communication, education and health) also show a rising trend between 1977 and 2007.
Some scholars have argued that an increase in government spending can be an effective tool to stimulate aggregate demand for a stagnant economy and to bring about crowed-in effects on the private sector. According to Keynesian view, the government could reverse economic downturns by borrowing money from the private sector and then returning the money to the private sector through various spending programs (Jelilov, Gylych; Kalyoncu, Huseyin; Isik, Abdurahman, 2015). High levels of government consumption are likely to increase employment, profitability and investment via multiplier effects on aggregate demand.
Thus, government expenditure, even of a recurrent nature, can contribute positively to economic growth. On the other hand, endogenous growth models such as Barro (1990), predict that only those productive government expenditures will positively affect the long run growth rate.
Various empirical studies on the relationship between government expenditure and economic growth also arrived at different and even conflicting results. Some studies suggest that increase in government expenditure on socioeconomic and physical infrastructure’s impact on the long run growth rate. For instance, government expenditure on health and education raises that productivity of labor and increase the growth of national output. Similarly, expenditure on infrastructure such as road, power, etc. (Jelilov, Gylych; Abdulrahman, Samira; Isik, Abdurahman, 2015), reduces production costs, increase private sector investment and profitability of firms, thus ensuring economic growth (Barro, 1990; Barro and Sali-i-Martin, 1992; Roux, 1994; Okojie, 1995; Morrison and Schwartz, 1996). On the other hand, observations that growth in government spending, mainly based on non- productive spending is accompanied by a reduction in income growth has given rise to the hypothesis that the greater the size of government intervention the more negative is its impact on (Glomm and Ravikumar, 1997; Abu and Abdullah, 2010). In the light of the above, the research work intends to examine the impact of government expenditure on economic growth in Nigeria.
1.2 Statement of the Problem
In the last decade, Nigeria economy has metamorphosed from the level of millions of Billions of Naira and postulate into trillions Naira on the expenditure side of the budget. This is not be surprising if the economy is experiencing surplus or equilibrium on the records of balance of payment (Jelilov, Gylych; Musa, Muhammad;, 2016). Better still, if there are infrastructures to improve commerce with the system or social amenities to raise the welfare of the average citizen of the economy. All these are not there, yet we always have a very high estimated expenditure. This indicates that something is definitely wrong either with the way government expands budget or with the ways and manners, it has always been computed (Jelilov, 2016).
Unfortunately, the rising government expenditure has not translated to meaningful growth and development, as Nigeria ranks among the poorest countries in the world. In addition, many Nigerians have continued to wallow in abject poverty, while more than 50 percent live on less than US$2 per day. Coupled with this, is the dilapidated infrastructure (especially roads and power supply) that has led to the collapse of many industries, including high levels of unemployment (Nurudeen and Usman 2010). Moreover, macroeconomic indicators like the balance of payments, import obligations, inflation rate, exchange rate, and national savings problems reveal that Nigeria has not fared well since the 1980.
1.3 Objectives of the study
The objective of the study is to examine the relationship between government expenditure and economic growth in Nigeria. The specific objectives are:
i). To examine the government expenditure patterns in Nigeria.
ii).To investigate if there is a significant relationship between government expenditure and economic growth in Nigeria.
iii). To develop an econometric model that would serve as a guide to policy makers in a bid to articulate government expenditure so as to stimulate economic growth in Nigeria.
iv). To examine the various factors influencing the level of economic growth in Nigeria.
1.4 Research Questions
The following research questions are raised for this research work:
i). What are the government expenditure patterns in Nigeria?
ii). Is there a significant relationship between government investment expenditure and economic growth in Nigeria?
iii). What are the ways forward to stimulate economic growth in Nigeria?
iv). What are the factors that influencing economic growth in Nigeria?
iv). To discuss the various factors influencing the level of economic growth in Nigeria.
1.5 Research Hypothesis
The Null hypothesis will be tested against the alternative hypothesis in this research work as stated below:
H0: There is no significant relationship between government expenditure and economic growth in Nigeria.
H1: There is a significant relationship between government expenditure and economic growth in Nigeria.
1.6 Significance of the Study
This study is significant because it revealed the effect of government expenditure on economic growth. Thus, the research will help the government on issues that relate to government expenditure. It will also help scholar in higher institution.
1.7 Scope of the Study
The area of the study is Nigeria. The period of study is 26years, which is 1990 – 2015. The choice of 1990 is based on the fact that the researcher wants to study Nigeria within the structural adjustment program (SAP) and the post structural adjustment program (SAP). The choice of 2010 as the terminal year is due to the fact that, the data required for this study are only available up to that date.
1.8 Limitations of the Study
The study is conducted with a number of limitations; one of such limitations is time constraint as the research is carried out with other academic work. Another problem encountered during the course of the study is shortage of finance. Finally, the fundamental limitation of most research work in the developing countries, concerns the poor quality and inadequacy of data.
1.8 Organization of the Work
This research project will be organized into five (5) chapters. Apart from the preliminary pages, which included title page, declaration, certification, dedication, acknowledgment and abstract.
Chapter one contains introduction which includes; background of the study, statement of the problem, objectives of the study, research questions, research hypothesis, significant the study scope of the study, limitation of the study, organization of the work and definition of terms.
Chapter two consists of review of literature and theoretical review. Chapter three contains research methodology.
Chapter four includes presentation and analysis. And chapter five contains summary conclusion and recommendation.
1.7 DEFINITION OF TERMS
Economic Growth; an increase in the amount of goods and services produced per head of the population over a period of time.
Government expenditure: refers to the purchase of goods and services, which include public consumption and public investment, and transfer payments consisting of income transfers (pensions, social benefits) and capital transfer.
Growth; A positive change in size, and/or maturation, often over a period of time. Growth can occur as a stage of maturation or a process toward fullness or fulfillment.