Government Expenditures and Economic Growth in Nigeria
Abstract
The study investigates the Government Expenditures and Economic growth in Nigeria from the period 1991-2022. The objective was set to address the problem of utilization of revenue targeted to improving the economic condition of Nigeria. The review of theoretical and empirical literature provided a basis for the selection and specification of model which was used to show if government capital and recurrent expenditure has positive or negative impact on economic growth. The data were got from CBN statistical bulletin. To proper solution to the problem, policies were recommended to tackle the setbacks to economic growth.
Chapter one
Introduction
Background of the study
Government expenditures refer to the amount of money that the government spends on various goods and services. These expenditures can have a significant impact on the economic growth of a country. Nigeria, like many other developing countries, has been striving to achieve sustainable economic growth, and government expenditures play a critical role in this regard.
Over the years, the Nigerian government has spent a significant amount of money on various projects, such as infrastructure development, education, healthcare, defense, and social welfare programs. The primary objective of these expenditures is to improve the living standards of the people and stimulate economic growth (Akanbi, 2014).
There is a positive relationship between government expenditures and economic growth in Nigeria. Increased government spending on infrastructure development, such as roads, bridges, airports, and seaports, can enhance transportation and communication networks, which can stimulate economic activities and attract foreign investments. (Smyth & Hsing, 2009)
Government expenditures on education and healthcare can improve the human capital of the country, leading to an increase in productivity and economic growth. A healthy and educated population is crucial for sustainable economic development. (Anyamu, 2013).
Defense expenditures can also have a positive impact on economic growth, as it can enhance national security and stability, which is essential for attracting foreign investments and promoting economic activities. (Ajayi and Oke (2012),
However, excessive government expenditures can lead to inflation, fiscal deficit, and debt accumulation, which can have adverse effects on the economy. Therefore, it is crucial for the Nigerian government to strike a balance between government expenditures and revenue generation to avoid macroeconomic imbalances.
Economic growth represents the expansion of a country GDP or outputs. Growth means an increase in economic activities.
The link between public expenditure and economic growth has attracted considerable interests on the part of economic researchers both at the theoretical as well as empirical level. Roughly speaking, one may distinguish between two opposing views: On the one hand, there is the Keynesian approach according to which government spending is an important policy tool to be used to ensure a reasonable level of economic activity; correct short-term cyclical fluctuations in aggregate expenditure (Singh and Sahni, 1984); and secure an increase in productive investment, thus providing a socially optimal direction for growth and development (Ram, 1986). The opposite view is that excessive state intervention in economic life affects growth performance in a negative way for two reasons: first, because government operations are often conducted less efficiently, they reduce the overall productivity of the economic system, second, because excessive government expenditure (usuallyaccompanied by high taxation levels) distorts economic incentives and results in suboptimal economic decisions (Barro 1990; King and Rebelo 1990)
Statement of the problem
Nigeria is a resource-rich country with enormous economic potential. However, the country has been facing several economic challenges, including a sluggish economic growth rate, high unemployment rate, and a wide income inequality gap. One potential factor that could help address these challenges is government expenditures, which can stimulate economic growth by creating jobs, improving infrastructure, and promoting business development.
Despite the potential benefits of government spending, there is a concern that inefficient use of funds or corruption could undermine the positive impact of government expenditures on economic growth. Furthermore, Nigeria’s economy is heavily reliant on oil exports, which makes it vulnerable to fluctuations in global oil prices, further highlighting the need for sustainable economic growth beyond oil.
Therefore, the problem that this study seeks to address is to examine the relationship between government expenditures and economic growth in Nigeria, with a particular focus on understanding the effectiveness of government spending in promoting sustainable economic growth in the country. Additionally, this study will investigate potential factors that could influence the impact of government expenditures on economic growth, such as corruption and global oil prices, to provide policy recommendations for enhancing the effectiveness of government spending in Nigeria.
Objective of the study
The objectives of the study are;
- To find out whether government capital expenditure has impact on the Nigerian economy
- To find out whether government recurrent expenditure has significant impact on the Nigerian economy
- To find out the direction of causality between gross domestic product and government expenditure
Research questions
The following research questions are formulated;
- Do government capital expenditure has impact on the Nigerian economy
- Do government recurrent expenditure has significant impact on the Nigerian economy
- Is there any direction of causality between gross domestic product and government expenditure
Research Hypotheses
The following research null hypotheses are formulated
H0= government capital expenditure has no impact on the Nigerian economy.
H0= government recurrent expenditure has no significant impact on the Nigerian economy.
H0=there is no direction of causality between gross domestic product and government expenditure.
Significance of the study
This study has much significance on household, stakeholders and no government as a whole, because economic growth is an engine of the economy. This research will serve as a research as a references on the other researcher who may carryout research work in this field of study.This research would help Nigerian government and her policy makers to restore fiscal discipline in Nigeria. This study would help in the debt management in Nigeria
Scope of the study
The scope of the study covers Government Expenditures and Economic growth in Nigeria. This study cover the period 1991 to 2022
Definition of terms
Government expenditure: 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.
Economic growth: Economic growth is an increase in the production of goods and services in an economy. Increases in capital goods, labor force, technology, and human capital can all contribute to economic growth.
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