Impact of Government Expenditure on Economic Growth in Nigeria (2000-2015)
Chapter One
OBJECTIVE OF THE STUDY
The study seeks to examine the impact of government expenditure on economic growth in Nigeria. Specifically, the study is targeted to
Examine the impact of government capital expenditure on economic growth in Nigeria.
Examine the impact of government recurrent expenditure on economic growth in Nigeria.
Chapter Two
Review of Related Literature
Conceptual Review
Government spending as a fiscal instrument serves useful roles in the process of controlling inflation, unemployment, depression, balance of payment equilibrium and foreign exchange rate stability. In the period of depression and unemployment, government spending causes aggregate demand to rise and production and supply of goods and services follow the same direction. As a result, the increases in the supply of goods and services couple with a rise in the aggregate demand exalt a downward pressure on unemployment and depression.
In the case of persistent rise in price (inflation) and the depreciation in the value of money, it is expected that reduction in government expenditures discourages aggregate demand and inflation and falling in the value of exchange rate are controlled. It is worthy to note that these two tools may be adopted simultaneously in the economy.
A rise in the government expenditure has the same effects as a reduction in the tax rates on aggregate demand. Similarly, the effects of a reduction in the government expenditures are the same as increases in tax rates.
Nature of Public Expenditure: Bhatia (2008) defines Public expenditure as the expenses which a government incurs for (i) its own maintenance, (ii) the society and the economy, and (iii) helping other countries. Public expenditure refers broadly to expenditure made by local, state and national government agencies as distinct from those of private individuals. Public Expenditure also comprises of government payments for the goods and services acquired and for the works done pursuant to their respective laws, social security contributions, interest payments of domestic and foreign debts, general borrowing expenditures, payments resulting from the discounted sale of borrowing instruments, economic, financial and social transfers, donations and grants, and others.
It is conventional to classify public expenditure into various economic categories. Accounting classification has been there for centuries because it enables the State Executives to maintain an effective control and check over public expenditure and possible leakages and wastage, diversion and misappropriations (Bhatia, 2008). It may be classification base on department or heads of expenditure. Such a classification is good for auditing and safeguarding against misappropriations, etc., but it does not help in the understanding of its effects. It is therefore, difficult to formulate an appropriate expenditure policy on this basis.
Economists classify government expenditures into three main types (Gerson, 1998): (i) Government purchases of goods and services for current use are classed as government consumption; (ii) Government purchases of goods and services intended to create future benefits, such as infrastructure investment or research spending are classed as government investment; and (iii) payments for debt services are classified as transfer payments. The classification of expenditure involves the division of government transactions into categories that would serve the purposes of government. Anyafo (1996) identifies five ways of classifying public expenditures: by levels of government, by ministries, extra-ministerial departments and parastatals, by economic life span, by object of expenditure and by sectoral economic functions. Public expenditures are functionally classified into four in Nigeria (CBN, 2008): Administration, Economic services, Social and Community services, and Transfers with capital and recurrent expenditure compositions.
Public Expenditure and Economic Growth: Public expenditure can help the economy in numerous ways in attaining higher levels of production and growth. The ways in which such effect might be brought about are obviously inter-related. The analysis of these effects can be taken up separately in the context of developed and developing economies (Bhatia, 2008). According to Dalton (1954), public expenditure tends to affect the level of production in three possible ways:
- Effect on the Capacity to Work and Save: Public expenditure provides various kinds of social and economic facilities stimulating the capacity to work of the people. Increased capacity implies increased efficiency and greater employment. Level of income and saving tends to rise, facilitating greater investment and adding the pace of growth. Dalton opines that ‘just as taxation reduces an individual’s capacity to work, in the same way public expenditure increases the individual’s capacity to work.’
- Desire to Work and Save: Public expenditure induces the public’s willingness to work and save. As a result, their income and standard of living rise.
- Redistribution of Economic Resources: Public expenditure makes the economy balanced by redistributing the income resource from unproductive activities to productive ones. This results in increase in production. This effect varies between developed and developing countries.
The developed countries have enough of production capacity, but its optimum utilization does not take place as a result of low demand. Consequently, there is low level of production. By increasing public expenditure, aggregate demand can be increased. Wealth can be distributed by increasing public expenditure among those who are willing to spend. Thus increase in demand results in the increase in production. In the event of full employment already existing in the economy, increase in public expenditure will only increase prices instead of production.
Bhatia (2008) cautions that to maximize the benefits of public expenditure and to avoid possible harmful incidental effects, firstly, the various projects have long gestation period, in which case the output is delayed. Yet they need to be funded, adding to the inflationary pressures. Care must therefore be taken that inflationary pressures are put under control during the process of development.
Secondly, on account of faulty planning and execution, a lot of wastage can take place in public expenditure. This must be avoided. Thirdly, given the scarce resources, care must be taken to choose the most appropriate and most useful projects. Cost-benefits study may be needed to prioritize the projects. Fourthly, a careful decision has to be taken regarding the volume of public expenditure in various projects and on various measures expected to stimulate investment. The effects of the sources of financing the compositions of public expenditure must be considered.
Public expenditure can also prove helpful in accelerating the rate of economic development. In order to maintain a steady growth rate in developed economy, public expenditure can be helpful in maintaining the adequate amount of investment and consumption expenditure, so that the full employment rate of the economic development is steadily maintained. Jain et al. (2008) aver that in order to accelerate economic development in the developing economies, public expenditure plays a crucial role. Public expenditure facilitates social overheads, roads, electricity, irrigation, etc. Development of private industries and agriculture is thus assisted, markets expand and the rate of investment increases. If public expenditure is made through foreign capital, it may prove more effective. If public expenditure is unproductive, it will only result in price hike.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
In this chapter, we would describe how the study was carried out.
Research design
It is a term used to describe a number of decisions which need to be taken regarding the collection of data before they are collected. (Nwana, 1981). It provides guidelines which direct the researcher towards solving the research problem and may vary depending on the nature of the problem being studied. According to Okaja ( 2003, p. 2),” research design means the structuring of investigation aimed at identifying variables and their relationship, it is used for the purpose of obtaining data to enable the investigator test hypothesis or answer research question by providing procedural outline for conducting research”. It is therefore, an outline or scheme that serves as a useful guide to the researcher in his efforts to generate data for his study.
The study employs quantitative descriptive research design to examine Impact Of Government Expenditure On Economic Growth In Nigeria (2000-2015).
Sources of Data
The data for this study were generated from two main sources; Primary sources and secondary sources. The primary sources include questionnaire, interviews and observation. The secondary sources include journals, bulletins, textbooks and the internet.
Population of the study
A study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description (Prince Udoyen: 2019). In this study the study population constitute of all the staff in various departments of Oshodi-Isolo local government council..
CHAPTER FOUR
RESULT AND DISCUSSION
Table 1: Pearson Correlation Table showing Government capital expenditure has not contributed significantly to economic growth in Nigeria between 2000 and 2015
CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATION
Conclusion
This study has examined the impact of government expenditure on economic growth in Nigeria for the 2000 – 2015 period. Existing literature shows that researchers are yet to reach a consensus about the impact of government expenditure on economic growth in Nigeria. Therefore, the effect is yet to be well established. This study has contributed to the research effort at empirical measure of the effect of government expenditure on economic growth. Data analysis revealed that a relationship exists between government expenditure and economic growth, and that while some
components of government expenditure exerted negative effect on growth, others exerted positive effect. As disaggregated components. capital and recurrent expenditures on economic services like general administration and education exerts positive and significant impact on economic growth, which tally with the findings of Chude N.P. and Chude D.I. (2013) on Impact of government expenditure on economic growth in Nigeria and indicated that total expenditure on education is highly and statistically significant and have positive relationship on economic growth.
Capital expenditure on health exerts positive impact on Gross Domestic Product but has insignificant relationship with economic growth, and recurrent expenditures on safety of the lives of citizen social amenities (Defense) had insignificant and negative effect on economic growth, which goes in line with J. Paul Dunne & Nan Tian (2013) on Military Expenditure, economic growth and Heterogeneity, revealed that, Military expenditure has a negative effect on economic growth. However, the aggregated or overall effect of government expenditure on economic growth is statistically significant, which also goes in addendum with the findings of Ukpabi Nnamdi (2013) on the empirical analysis of the impact of government expenditure of economic growth, that reveals that Government expenditure has a positive relationship on economic growth.
This also supports the Keynesian (1936) view of government active intervention in the economy using various policy instruments. Also, as available CBN data on government expenditure and economic GDP exhibit increasing trend, the analysis equally supports the Wagner’s (1813) postulate of Ever Increasing State Activity.
Consequently, this analysis supports growing evidence that government expenditure has a relationship with and exerts significant effect on economic growth. The study further concludes that the components of government expenditure (General Administration, Defense, Education and Health) considered in this study are important variables in explaining economic growth in Nigeria and the style of government in Nigeria do not have any significant impact on its economic growth.
Recommendations
In the light of the researcher’s findings, the following recommendations are presented:
Government expenditure whether capital and recurrent should be managed and monitored at the implementation stage to enhance comparable achievement viz-a-viz on economic growth. They should ensure that capital and recurrent expenditure are properly managed in a manner that it will raise the nation’s international relations as it affects doing business with other countries. The long run effect of this is that it will help to raise the value of her currency and stabilize the economy which will lead to economic growth.
- The government should also endeavor to increase her expenditure on Health, to be able to get to the citizen in the rural area. The aftermath effect in the increase of her health expenditure is that, the people living in the rural area will be in good health to meet up with their daily activity of fishing and farming. On the other hand, they should also assist in rendering free health service like, anti-natal care, maternal care, children between the age of 0-5,etc. It will boost the state of health of the rural citizens as well as attaining the welfare objective of the government.
- Education should be adequately funded and the funds should be monitored and utilized efficiently. This is necessary considering the fact that education create positive externalities. The finding that it is negatively related to economic growth in Nigeria, does not follow economic postulations. This may be due to economic factors such as corruption. Moreover, government should also increased its investment in this sector since the proportion of federal government education budget to total budget is still very low as its falls below the UNESCO set bench mark of 26% for developing countries. Another reason why government should be advise to increase government funding on education is to curtail the level of strike in our education sector and as well increase funding on anti-graft or anti-corruption agencies like the Economic and Financial Crime Commission (EFCC), and the Independent Corrupt Practices Commission (ICPC) in order to arrest and penalize those who divert and embezzle public funds. Furthermore, expenditure on defense should be closely monitored ,as it is one of the way government officials use in siphoning funds in the name of security votes.
Finally, capital and recurrent expenditures on economic services should be directed mainly to productive economic activities. This will stimulate activities in the economic sectors and, perhaps, reverse the negative effect on economic growth.
References
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