Effect of Government Expenditures on Economic Growth in Nigeria

Topics: Economic growth, Macroeconomics, Public finance Pages: 17 (5709 words) Published: June 21, 2013
European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 3, No.9, 2011

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Government Expenditure and Economic Development: Empirical Evidence from Nigeria Muritala Taiwo Department of Economics and Financial Studies, Fountain University Osogbo, Nigeria Corresponding Author’s E-mail: muritaiwo@yahoo.com Tel: +2348034730332; +2347054979206 Taiwo Abayomi Department of Economics, Tai Solarin University of Education, Ijebu-Ode, Nigeria E-mail: yommy246@yahoo.com Tel: +2348055821802 Abstract This study attempts to empirically examine the trends as well as effects of government spending on the growth rates of real GDP in Nigeria over the last decades (1970-2008) using econometrics model with Ordinary Least Square (OLS) technique. The paper test for presence of stationary between the variables using Durbin Watson unit root test. The result reveals absence of serial correlation and that all variables incorporated in the model were non-stationary at their levels. In an attempt to establish long-run relationship between public expenditure and economic growth, the result reveals that the variables are co integrated at 5% and 10% critical level. The findings show that there that there is a positive relationship between real GDP as against the recurrent and capital expenditure. It could therefore be recommended that government should promote efficiency in the allocation of development resources through emphasis on private sector participation and privatization\commercialization. Keywords: Current expenditure; capital expenditure; macroeconomics; economic development 1. Introduction 1.1 Background of the Study The recent revival of interest in growth theory has also revived interest among researchers in verifying and understanding the linkages between government spending and economic growth especially in developing country like Nigeria. Over the past decades, the public sector spending has been increasing in geometric term through government various activities and interactions with its Ministries, Departments and Agencies (MDA’s), (Niloy et al. 2003). Although, the general view is that public expenditure either recurrent or capital expenditure, notably on social and economic infrastructure can be growth-enhancing although the financing of such expenditure to provide essential infrastructural facilities-including transport, electricity, telecommunications, water and sanitation, waste disposal, education and health-can be growth-retarding (for example, the negative effect associated with taxation and excessive debt). The size and structure of public expenditure will determine the pattern and form of growth in output of the economy. The structure of Nigerian public expenditure can broadly be categorised into capital and recurrent expenditure. The recurrent expenditure are government expenses on administration such as wages, salaries, interest on loans, maintenance etc., whereas expenses on capital projects like roads, airports, education, telecommunication, electricity generation etc., are referred to as capital expenditure. One of the main purposes of government spending is to provide infrastructural facilities.

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European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 3, No.9, 2011

www.iiste.org

The effect of government spending on economic growth is still an unresolved issue theoretically as well as empirically. Although the theoretical positions on the subject are quite diverse, the conventional wisdom is that a large government spending is a source of economic instability or stagnation. Empirical research, however, does not conclusively support the conventional wisdom. A few studies report positive and significant relation between government spending and economic growth while several others find significantly negative or no relation between an increase in government spending and growth in real output. An...

References: Azerbaijan: International Monetary Fund (IMF) working paper. WP/08/115. Bakare I.A.O (2003), “Fundamental and Practice of Marcoeconomics” Giitbbak publisher
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European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 3, No.9, 2011
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European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 3, No.9, 2011
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European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 3, No.9, 2011
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