The Impact of Government Expenditure on Economic Growth in Nigeria (1980-2016)
Chapter One
OBJECTIVE OF THE STUDY
The main objective of the study is to ascertain the impact of government expenditure on economic growth in Nigeria. But to aid the successful completion of the study, the researcher intends tp achieve the following specific objectives;
- To ascertain the impact of government expenditure on economic growth
- To examine the relationship between government expenditure and economic growth in Nigeria
- To examine the effect of government expenditure on the gross domestic product of the country
- To ascertain the role of government in expenditure on the growth of Nigeria’s economy
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
Over the years, the size, structure and growth of government expenditure have increased tremendously and become increasingly complex. Not only has recent political developments engendered expenditure growth, the challenge of raising additional and identifying alternative sources of revenue to meet the ever increasing needs of governance have made it more imperative to take a more focused look at government activities, especially its expenditures Pigou (1928), in his legendary book Public Finance noted that in every developed society there is some form of government organization. The governing authority, whether central or local is endowed with functions and duties, the detailed nature of which varies in different places. These duties involve expenditure and, consequently, required also the raising of revenue. Though Pigou’s perception of what a government and its accompanying responsibility was, had undergone tremendous transformation, both in size and complexities over time, the underlying concept of public expenditure as a veritable instrument through which government policy choices are carried out remains intrinsically unaltered in today’s economies. Hence the continuous postulations of several theories as well as the identification of various variables that purport to explain the growth in the relative size of the public sector. Some of these dominant streams of thought are reviewed here. What is now referred to, as Wagner’s law of Increasing State Activity, was the pioneering work of Adolph Wagner, a German economist, who attempted to scientifically explain the share of GNP taken up by the public sector in some European Countries. Wagner, as cited by Bhatia (1967) postulated that there existed a functional relationship between the growth of an economy and the growth of government activities. Although not expressed in rigorous or objective terms, Wagner’s law suggested that, an increase in the relative size of the public sector arise because of rising per capita income, which would induce greater spending(Hartle:1976). But because Wagner never indicated whether his findings were either in absolute or relative terms, Musgrave (1969), chose to interpret Wagner’s law in relative terms as an expression of the growth of the relative size of the public sector. This suggested that as per capita income in an economy grows, the public sector size would also grow in tandem. Peacock and Wiseman (1961) hypothesis, which was based on the political theory of public expenditure determination, stated that governments like to spend more money, that citizens do not want to pay more taxes, and that government needs to pay more attention to the wishes of their citizens with the assumption that a tolerable level of taxation which according to the authors, acts as a constraint on government behavior. In the view of Fan et al (1999), Fan et al (2004) and Chemingui (2005), targeting government expenditure simply to reduce poverty was not sufficient. Government expenditure also needed to stimulate economic growth to help generate the resources required for future government expenditures such growth was the only way of providing a permanent solution to the problem and to increase the overall welfare of the people. Adubi and Obioma (1999) observed that in almost all of these countries, public expenditure usually accounted for over 20 percent of the gross domestic product (GDP) in their study of the expenditure management in Nigeria. According to Piana (2001), public expenditure played four cardinal roles: contributes to current effective demand, of goods as well as give rise to positive externalities to the economy and society through its capital component.Iyoha (2002) in his findings noted that practically all studies have proved government expenditure to exhibit a tendency to rise at a faster rate than the GDP irrespective of the level of development. This finding was in tandem with a similar research by Thorn (1967), whose study of government expenditure of 52 countries showed a mean elasticity of central government expenditure to GDP to be 1.22 higher than unity. It was, therefore, paradoxical to observe that despite government’ policy tilt toward private sector led economy, empirical finding have always confirmed Wagner’s postulation on increasing government expenditure relative to national income. Aigbokhan (2003) on his part, however, did not see expansion in public expenditure as an inimical development that need to be curtained so long as it was adequately matched with expansion in government revenue, efficiently managed will not fuel inflation and the composition was productive enhancing and development oriented. Ram (1986) marked a rigorous attempt to incorporate a theoretical basis for tracing the impacts of government expenditure on growth through the use of production functions specified for both public and private sectors. The data spanned 115 countries sufficient to derive broad generalizations for the market economies investigated. When investigating the effect of government on economic growth in Saudi Arabia, AI-Yousif (2000) used two different models and reached contradicting results. However, he found the model with positive relationship between government size and economic growth more applicable and therefore concluded that government size could have a positive effect on economic growth. Folster and Henrekson (2000) found a robust negative relationship between government expenditure and growth. Their study was carried out in more developed countries between the years 1970 – 1995. Their estimated coefficients suggested that a 10 percentage increase in government expenditure was associated with a decrease of 0.7 – 0.8 percentage points in growth rate. In less developed countries like Nigeria, less attention had been given to examining the productiveness of the various components of public spending. This was borne out of the observation that the primary objective of fiscal policy was aggregate demand management (Diamond 1990).
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to examine the impact of government on economic growth in Nigeria 1980-2016.
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment, the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on the study the impact of government expenditure on economic growth in Nigeria. 200 staff of central bank of Nigeria was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the impact of government expenditure on economic growth in Nigeria 1980-2016
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of government expenditure on economic growth in Nigeria.
Summary
This research work investigates the impact of government expenditure on economic growth in Nigeria 1980 to 2016. The co-integration test employed revealed that there is a long run relationship between the Real Gross Domestic Product (RGDP) and the explanatory variables; Government Capital Expenditure (GCEXP) and Government Recurrent Expenditure (GREXP). The normalized integrating coefficients for one counteracting equation given by the long-run relationship indicated that the constant value is negative which means that the proportion in the real gross domestic product (RGDP) in Nigeria tends to decrease, keeping other variables constant in the long-run.
Conclusion
As mentioned earlier, the study seeks to investigate the effect of federal government expenditure (capital and recurrent) on economic growth in Nigeria for the period 1980-2016. The researcher investigated within the scope of study and found that total government expenditure contributes positively to economic growth in Nigeria. Based on this result, the researcher rejects the null hypotheses and concludes that there is a significant relationship between federal government expenditure (capital and recurrent) and economic growth in Nigeria.
Recommendations
Based on the findings, the researcher recommends the following: Since government expenditure has been found to induce growth, the federal government should engage in more productive endeavors and direct resources to projects with long term benefits. Government capital expenditure especially on agriculture and industry should be properly managed as they have the potential of raising the nation’s production capacity and generating employment. Government should increase its expenditure on rural roads and electricity as this will accelerate private sector growth as well as raise the standard of living of poor citizens in the country. Government should pay its workers regularly. When workers receive their salaries regularly, there is an improvement in their standard of living and it signifies growth in the economy.
Reference
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- Akpan, U. F. and Abang, D. E. (2013). Does Government Spending Spur Economic Growth? Evidence from Nigeria. Journal of Studies in the Social Sciences. 5(1), 36-49.
- Awomuse, B. O., Olorunleke, K. and Alimi, R. S. (2013). The effect of federal government size on economic growth in Nigeria, 1961-2011. Munich Personal RePEc Archive (MPRA). 1-12
- Central Bank of Nigeria Statistical Bulletin. (2014). 25, 77-79.
- Chude, N. P. and Chude, D. I. (2013). Impact of Government Expenditure On Economic Growth in Nigeria. International Journal of Business and Management Review. 1(4): 64-71.
- Egbetunde, T. and Fasanya, I. O. (2013). Public Expenditure and Economic Growth in Nigeria: Evidence from AutoRegressive Distributed Lag Specification. Zagreb International Review of Economics & Business. 16(1), 79-92.