Federal Government Expenditure And Economic Growth In Nigeria

ABSTRACT

The study examined Federal government expenditure and economic growth in Nigeria. Data for the study includes; federal government capital expenditure, federal government recurrent expenditure, gross domestic product, per capita income and inflation rate. Data were extracted from CBN statistical bulletin and were analyzed using multiple regression statistical technique and ordinary least square (OLS). The results revealed that (i) Federal government capital expenditure has positive and significant effect on the real gross domestic product of Nigeria (ii) Federal government recurrent expenditure has a positive but insignificant effect on real gross domestic product of Nigeria (iii) Federal Government Capital expenditure has a positive but insignificant effect on Per Capital Income of Nigeria (iv) Federal Government Capital recurrent has a positive but insignificant effect on Per Capital Income of Nigeria and (v) The relationship between total federal government expenditure and Real Gross Domestic Product is not significantly moderated by the rate of inflation in Nigeria. Based on the findings, the study recommends that Nigerian government should channel fund more on capital expenditure which has positive effect on real gross domestic product, to enhance the economic growth of the country. Also, there is a need for government to streamline and monitor the channels non-interest recurrent expenditure passes through in order to contribute meaningfully to the economic growth of the country. Government should also review their recurrent expenditure especially salaries because of high cost of living in the country currently.

TABLE OF CONTENTS

Title page                                                                                                                                i

Declaration page                                                                                                                     ii

Dedication                                                                                                                              iii

Acknowledgement                                                                                                                  iv

Certification                                                                                                                            v

Table of content                                                                                                                      vi

Abstract                                                                                                                                  x

CHAPTER 1: INTRODUCTION

1.1 Background to the Study                                                                                                 1

1.2   Statement of the Problem                                                                                               4

1.3 Objectives of the Study                                                                                                    5

1.4. Research Questions                                                                                                          6

1.5. Research Hypotheses                                                                                                       6

1.6. Significance of the Study                                                                                                7

1.7. Scope of the Study                                                                                                          7

CHAPTER 2: REVIEW OF RELATED LITERATURE

2.1.1 The concept of government expenditure                                                                       8

2.1.2 Economic growth                                                                                                           12

2.1.3 Economic development in Nigeria                                                                                 13

2.1.4 Infrastructure as an economic growth indicator                                                                        17

2.1.5 Human capital as an economic growth indicator                                                           21

2.1.6 Gross domestic product (GDP) as an economic growth indicator                                24

2.1.7 Per capita income as an economic growth indicator                                                      24

2.1.8 Government expenditure and economic growth                                                           25

2.1.9 Capital expenditures and economic growth                                                                  28

2.1.10 Recurrent expenditures and economic growth                                                            30

2.1.11 Impact of government expenditure on inflation                                                          33

2.1.12 Government expenditure on the education sector                                                       34

2.1.13 Government efforts on agricultural growth in Nigeria                                                37

2.1.14    Investment on health and economic growth                                                             38

2.1.15 Government expenditure size and its effects on economic growth                             40

2.2   Theoretical review                                                                                                           42

2.2.1 The Wagner’s theory of increasing state activities                                                        42

2.2.2 Economic growth theory                                                                                               43

2.2.3 The Keynesian theory                                                                                                    43

2.3   Empirical review                                                                                                             44

2.4 Summary of empirical review                                                                                           56

2.5 Gap in the literature                                                                                                          62

CHAPTER 3: METHODOLOGY

3.1 Research Design                                                                                                               63       

3.2 Area of the Study                                                                                                                         63

3.3 Sources of Data                                                                                                                63

3.4 Method of Data Analysis                                                                                                 63

3.5 Model Specification                                                                                                          63

3.6 Description of Variable                                                                                                     65

CHAPTER 4: DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS

4.1: Data Presentation                                                                                                             67

4.2 Pre-estimation Diagnostics                                                                                               67

4.2.1 Descriptive analysis                                                                                                       67

4.2.2 Unit root test                                                                                                                  68

4.3    Model Estimation Based on OLS Technique Specified for the Study                         69

4.3.1  Effect of federal government capital and recurrent expenditures on real

         gross domestic product                                                                                                  69

4.3.2 Effect of federal government expenditure on per capita income                                  73

4.3.3:   Moderation effect of inflation rate on the relationship between

         total government expenditure and RGDP in Nigeria                                                    76

4.4       Hypotheses Testing                                                                                                     77

4.4.1    Testing for the effect of federal government capital expenditure on real gross

             domestic product of Nigeria                                                                                      77

4.4.2    Testing for the effect of federal government recurrent expenditure on real gross

             domestic product of Nigeria                                                                                      77

4.4.3    Testing for the effect of federal government capital expenditure on per

            capital income in Nigeria.                                                                                           77

4.4.4    Testing for the effect of federal government recurrent expenditure on per

            capital income in Nigeria.                                                                                           78

4.4.5    Testing for the moderation/interaction effect of inflation rate on the relationship

          between total federal expenditure and economic growth in Nigeria.                           78

4.5       Discussion of Findings                                                                                               78

CHAPTER 5: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Findings                                                                                                       82

5.2 Conclusion                                                                                                                        82

5.3  Recommendations                                                                                                            82

5.4 Contribution to Knowledge                                                                                              83

5.5 Areas for Further Research                                                                                               84

REFERENCES                                                                                                                      85

APPENDICES

LIST OF TABLES

4.1: Descriptive statistics                                                                                            67

4. 2 Descriptive statistics of normally distributed series                                            68

4.3 Zivot Andrews unit root test                                                                                69

4.4:  Diagnostic test result on RGDP model series                                                     70

4.5:  Post estimation test on adjusted RGDP model                                                  71

 4.6: Effect of capital and recurrent expenditures on real gross domestic

      product                                                                                                      72

4.7:  Diagnostic test result on PCI model series                                                         73

4.8: Post estimation test on adjusted PCI model                                                        74

4.9: Effect of capital and recurrent expenditures on per capita income                     75

4.10: Results of moderation/interaction effect of inflation rate on the

relationship between government expenditure and RGDP.                           76