Response Of The Capital Market To Public Expenditure In Nigeria: 1999 -2020

ABSTRACT

The abstract presented a study that examined the response of the Capital Market to Public expenditure in Nigeria. The research aimed to investigate the relationship between the four major categories of public expenditure in Nigeria (Administration, Economic Services, Social and Community Services, and Transfer Payments) and the development of the capital market, as measured by the Market Capitalization index. Time series data spanning from 1999 to 2020, sourced from the Central Bank of Nigeria Statistical Bulletin, were utilized for the study. The stationarity of the variables was assessed using the Augmented Dickey-Fuller unit root test, while the existence of long-run and short-run equilibrium conditions was analyzed through the co-integration and Vector Error Correction Model (VECM). The empirical findings revealed a long-run equilibrium relationship between Public Expenditure and Capital market development in Nigeria during the period under study. Specifically, it was observed that public expenditure in Administration exhibited a significant and negative long-term relationship with Capital market growth in Nigeria. Conversely, Expenditure in Economic Services, Social and Community Services, and Public Transfer showed a significant but positive long-run relationship with stock market growth. In light of these findings, the study recommended an increase in government expenditure to stimulate Capital market growth in Nigeria and a reduction in borrowing to alleviate the burden of frequent debt servicing. Furthermore, it suggested reducing the importation of basic social amenities and equipment, instead focusing on funding local contractors and industries to execute major projects and thereby enhance investment in the Capital market, ultimately leading to economic growth. In conclusion, this study provided valuable insights into the relationship between public expenditure and the performance of the Capital Market in Nigeria. The findings have significant implications for policymakers, offering strategic directions to foster Capital market development and improve the overall economic landscape. 

TABLE OF CONTENTS

Title page                                                                                                                                        i

Declarations                                                                                                                                    ii

Certification                                                                                                                                    iii

Dedication                                                                                                                                      iv

Acknowledgements                                                                                                                        v

Table of contents                                                                                                                            vi

List of Tables                                                                                                                                  ix

List of Figures                                                                                                                                x

Abstract                                                                                                                                          xi

CHAPTER 1: INTRODUCTION

1.1 Background to the Study                                                                                                         1

1.2 Statement of the Problem      4

1.3 Objectives of the Study                                                                                                            6

1.4 Research Questions    6

1.5 Hypotheses                                                                                                                              

1.6 Scope of the Study                                                                                                                       7

1.7 Significance of the Study                                                                                                           7

1.8 Limitations of the Study                                                                                                            7

CHAPTER 2: REVIEW OF RELATED LITERATURE

2.1 Conceptual Review    9

2.1.1 Concept of government expenditure   9

2.1.2 Capital expenditure   10

2.1.2.1 Importance of Capital Expenditures   11

2.1.3 Recurrent expenditure   12

2.1.4 Transfer payments   13

2.1.5 The capital market 13

2.1.5.1 Market capitalization   15

2.1.6 Conceptual framework   16

2.2 Theoretial Framwork.                                                                                                               16

2.2.1 Keynesian economics   16

2.2.2 Wagner's law of increasing state activity   18

2.2.3 Peacock-Wiseman hypothesis or displacement effect 20

2.3 Empirical Review    21

2.4.1 Extract of empirical review    35

2.4 Summary of Empirical Literature   38

2.5 Gap in Literature   38

CHAPTER 3: METHODOLOGY

3.1 Research Design   39

3.2 Area of Study   39

3.4 Method of Data Collection   39

3.5 Model Specification   40

3.6 Method of Data Analysis   40

3.7 Decision Rule   42

3.8 Diagnostic and Robustness Tests   42

3.9 Description of Variables   43

3.9.1 Dependent variables   43

3.9.2 Independent variables   44

CHAPTER 4: PRESENTATION OF DATA, ANALYSIS AND DISCUSSIONS

4.1 Presentation of Data                                                                                                                 46

4.2 Descriptive Statistic                                                                                                                  47

4.3 Test for Stationarity                                                                                                                  47

4.4 Lag Selection                                                                                                                            48

4.5 Test for Long-run Equilibrium                                                                                                  49

4.6 Diagnostic tests                                                                                                                        52

4.7 Post Estimation Test                                                                                                                 53

4.8 Test of Hypotheses                                                                                                                   54

4.9 Discussion of Findings                                                                                                             56

CHAPTER 5: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Findings                                                                                                               59

5.2 Conclusion                                                                                                                                59

5.3 Recommendations                                                                                                                    59

5.4 Contribution to Knowledge                                                                                                     60

5.5 Areas of further studies                                                                                                            60

References                                                                                                                                      61

Appendices                                                                                                                                     64

LIST OF TABLES

2.1       Webometric Summary of Reviewed Empirical Studies                                             31

3.9.1    Summary of Operational Definition of Research Variables                                       42

4.1       Data used for the Study                                                                                             43

4.2.1    Descriptive statistic of data                                                                                        44

4.3       Unit Root Test Results For Stationarity Of Data                                                       45

4.4       Lag Length Selection                                                                                                  46

4.5       Johansen  Co-integration Rank Test (Trace)                                                               46

4.5.1    Johanson co-integration rank test (Maximum Eigenvalue)                                         46

4.6       Normalized Coefficient Test Result                                                                           47

4.7       Long-run Relationship                                                                                                47

4.8       Short run Relationship                                                                                                48

4.9       Summary of Diagnostic Test Result                                                                           49

LIST OF FIGURES

2.1       Conceptual Frame work                                                                                  14

4.1       CUSUM Test                                                                                                  50

4.2       CUSUM of Squares                                                                                       50