The Impact of Government Expenditure on Economic Growth (1981 – 2016)
CHAPTER ONE
OBJECTIVES OF THE STUDY
The main objective of this study is to empirically examine the impact of government expenditure on economic growth in Nigeria. The specific objectives of the study are as follows:
- To evaluate the contribution of government expenditure on economic growth in Nigeria.
- To examine factors that as hinder adequate government expenditure in Nigeria.
- To make policy conclusions and recommendations based on the results of the study.
CHAPTER TWO
LITERATURE REVIEW
Introduction
The chapter reviews related literatures on the problem under study. It dwells on theoretical reviews, the determinant of economic growth, and empirical literature review. It looks at the nexus public between expenditure management and economic growth, price stability, and Income redistribution among other macroeconomic objectives in Nigeria. The main objective is to explore the concepts and theories of public expenditure and theories of economy growth.
Theoretical Review
Theories of Economic Growth
There are many theories that have been propounded in order to explain the resolve by the government to use scarce resource to achieve its goals and objectives. These theories includes among others; Smith’s Progressive state theory, theory of production by David Ricardo, stages of economic growth by W.W Rostow, the structuralist theory; the Solow model and the Endogenous growth theory. These theories are reviewed in this section.
Smith’s Progressive State Theory
The David Ricardo’s Theory of difference was propounded based on the argument that the progressive states are in tandem with reality; they are happy and healthy state with different orders or groups in the society. According to proponent, progressive state must prudently manage its resources in order to attain a high standard of living for its citizens as well as higher per capital income overtime. Accordingly, for a society to achieve growth in its economy, there is an astute need for religions and judiciously manage its public finance in such a way, that higher living standard and per capital income is ensure.
The Structuralist
The structuralism argued that economic development and growth and is a trade-off between foreign and domestic power relations. They maintained that there are institutional and structural rigidities and, proliferation of dual economies within and among economies (Coats, 1996)
The Solow Model
The most popular theory of economic growth is the Solow model. This theory was put together by Solow and Swan. Solow and Swan postulated that Ceteris paribus [all things being equal], economic growth is determined by many factors which includes amongst others, among others scarcity assumptions, capital stock, labour and growth rate of population
Solow model further postulated that Capital accumulation per worker can only be achieved with increased saving/investment rates. Hitherto, the increased capital per worker will consequently leads to more output per worker. Romer (1990)
The expressed that increased population or high population growth will exert negative effect on economic growth. This submission is based on the fact that higher population growth will mean that saving in the economy will be shared by the higher population, thereby depleting the savings which is needed in order to keep the capitallabour ratio at a steady state. If there is no change in technology, Research, development and innovation, a rise in capital for each worker would not be facilitated by a comparing addition in yield per labourer as an after effect of unavoidable losses.
The deepen capital would cut down the rate of profit for capital.
CHAPTER THREE
METHODOLOGY
Introduction
The chapter described the methods of data collection, presentation and analysis. In the chapter, the theoretical framework and the model for the study were developed and clearly specified. It consists of the model which specified the functional relationship between economic variables used in the study. The techniques used in analyzing the data, the sources of data and method used in the collection of data are all stated.
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF
RESULTS
Introduction
The chapter dwells on data presentation and estimation of the specified regression model.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary
The chapter one of the study attempted to address the background, problem, objective and research questions. Other issues raised include: research hypotheses, significant and scope of the study. Empirical works were reviewed in chapter two and relevant related issues to the study were also reviewed. Here, objective and critical examination was given to the circumstances under which the public expenditure operates and taking position from the views of past scholars who have at one time or the other contributed to knowledge.
Chapter three examine the methodology adopted as well as method of data collection, method and tool of analysis as well as justification for the research methods used.
Chapter four presents analyses and interprets the data collected via our data collection tools. In addition, the hypotheses formulated were discussed and research findings were intensely reported. Finally, last chapter discussed the summary, limitation, conclusion and recommendations of the study.
Recommendations
With reference to the findings of this study, the following policy options are recommended that:
- There an urgent need for government to make sure that both capital and recurrent expenditure are judiciously and religiously managed in such a manner that it will boost nations production base and promote economic growth and of the country.
- Expenditure in all the sectors of the economy should receive increased funding (with more credence to capital expenditure). Likewise, nation’s resources need to be well managed and properly channeled towards execution of projects that will promote development and growth of the economy.
- Furthermore, to tackle the menace of leakages in the expenditure channel, government need to strengthen her institutions most importantly those antigraft agencies through improved funding, capacity building and orientation so as to combat corruption and corrupt practices.
- Finally, public expenditure on capital and infrastructure should be boosted to encourage the private sector in job creation that would increase productivity and reduce the rising government expenditure in Nigeria.
Conclusion
Purposively, this study is set outto practically investigate the impact of government expenditure and economic growth using econometric modeling with annual time series covering the period 33 years (1981-2017). The study employed the Cointegration Rank test to look at the nature of the relationship between these variables and found no long run relationship between them which gave rise to estimating the model formulated using VAR techniques.
Hence, the study concludes that government expenditure has a significant impact on economic growth though the significance is form dependent. i.e. the form of government expenditure considered. It was seen economic growth in Nigerian over the years has been significantly affected by both capital and recurrent expenditure but the level of their effect varies in degree and extent. This study found that capital expenditure would have really positively impacted the level of economic growth but for the issue of corruption and institutional oddity though the intended capital expenditure is indirectly converted to recurrent expenditure somehow which has its own effect on the Economic growth.
REFERENCES
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- Barro, R.J. (1996), “Determinants of Economic Growth: A Cross-Country Empirical Study,” Cambridge, MA: NBER Working Paper Series, WP5698.
- Barro, R.J. (1997), “Determinants of Economic Growth: A Cross-Country Empirical Study,” The MIT Press, Cambridge, Massachusetts.