Government Expenditure and Economic Growth: Evidence from the Nigeria Economy (1981 – 2016)

Abstract

The effect of government expenditure on economic growth in Nigeria for a period of thirty-six (36) years that is, from 1981 to 2016 was the focus of this study. This study was inspired by two leading controversial issues in theoretical literature and empirical studies regarding the effect of government expenditure on economic growth for emerging economies. First, within the theoretical claim, Keynesian school of thoughts assert the presence of positive linkage between government expenditure and economic growth and development, while neoclassical economists refute this assertion and posited a negative association between government expenditure and economic growth and development. Identifying the side of these two arguments that is akin to all economies remains a puzzle among scholars as validation of either theory across the globe is still in vain. Secondly, the direction of relationship/causality between government expenditure and economic growth and development over the years is still not clear, especially for developing countries. Specifically, this study ascertained the effect of government recurrent and capital expenditure on the growth rate of real gross domestic product. We applied the Autoregressive Distributive Lag (ARDL) Co-integration and Granger causality test using secondary data from the Central Bank of Nigeria. We found that Nigeria’s economic growth is independent/not affected by government recurrent and capital expenditure. We are of the opinion that the Federal Government through its appointed ministers in collaboration with the legislature review the composition of Federal Government of Nigeria total expenditure by ensuring that capital expenditure takes at least 50% of annual total expenditure. Measures such as reducing foreign training and bogus allowances for political office holders should be tailored towards reducing government consumption expenditures.