Impact of Government Expenditure

Topics: Economics, Infrastructure, Economic growth Pages: 25 (6866 words) Published: April 14, 2013
IJMBS Vol. 2, ISSue 2, AprIl - June 2012

ISSN : 2230-9519 (Online) | ISSN : 2231-2463 (Print)

Government Spending on Road Infrastructure and Its
Impact on the Growth of Nigerian Economy

Nworji I. D., 2Oluwalaiye O. B

Dept. of Accounting, Babcock University, Ogun State, Nigeria Dept. of Economics, Banking and Finance, Babcock University, Ogun State, Nigeria 1


The study examined the impact of government spending on road infrastructure development on economic growth in Nigeria for the period 1980-2009. The study employed multiple regression analysis model specified on the basis of hypothesised functional relationship between government spending on infrastructure

development and economic growth. Indicators used for government spending are values for defence, transport/communication, and inflation rate as the explanatory variables, while gross domestic product constituted the explained variable. The model for the study was estimated using the Ordinary Least Square (OLS) technique, and further evaluation was carried out using the coefficient of determination to explain the variations between the dependent and independent variables. The outcomes showed that transport and communication, including defence, individually exerted

statistically significant impact on the growth of the economy; however, inflation exerted positively but statistically in the period reviewed. However, the variables jointly exerted statistically significant impact on the growth of the economy. Additionally, the model exhibited a very high explanatory power. Based on the findings the study recommended that better co-ordination in the terms of private participation in funding and maintenance of road infrastructure could further enhance the growth of the economy. Keywords

Nigerian Economy, Growth, Road Infrastructure, Government
I. Introduction
The issue of government intervention in resource allocation
arose due to the failure of market mechanism to effectively and efficiently perform this function. The public sector operates in a mixed system, that is, the interaction between the public and private sector in an economy. The government from the very

inception was not to be involved in the day to day running of the economy as propounded in the doctrine of laizzez-faire by Adam Smith, but to provide an enabling environment for the economy to operate, while maintaining law and order and protecting the nation from external aggression. The market mechanism could

to a greater extent cater for the allocation of private goods based on exchange and having rival but certainly not reliable for public goods. Public goods according to Wikipedia encyclopaedia is a non-rivalry and non-excludable. Non-rivalry implies consumption of good by one individual does not reduce its availability for by consumption by others; while non-excludability means, no

person can be effectively excluded from using the good. In reality, it might be difficult to absolutely come across non-rivalled and non- excludable good, however, economists reason that some
goods such as defence, health, roads and others approximate the concept closely enough for analysis to be economically useful. Government performs two major functions:
Protection of life and property and provision of certain goods considered to involve huge financing such that the private
enterprises could find difficult to produce. Protection function


InternatIonal Journal of ManageMent & BusIness studIes

consists of the creation of rule of law and enforcement of property rights. This is necessary to reduce risks of criminality, protect life and property and the nation from external attack. In the provision of public goods such items as defence, water, power, education, roads, health readily come to mind. In the academia, some

scholars are of the view that increased government expenditure on socio-economic and physical infrastructure such as on health and education would...
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