GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH: THE CASE OF NIGERIA

 

Lawrence Uchenna OKOYE¹*, Alexander Ehimare OMANKHANLEN², Johnson I. OKOH³, Ese URHIE⁴, Ado AHMED⁵

¹Dr., Covenant University Ota, Nigeria, lawrence.okoye@covenantuniversity.edu.ng

²Dr., Covenant University, Ota, Nigeria, alexander.omankhanlen@covenantuniversity.edu.ng

³Dr., National Open University of Nigeria, okohjohnson1@gmail.com

⁴Dr., Covenant University, Ota, Nigeria, ese.urhie@covenantuniversity.edu.ng

⁵Dr., Abubakar Tafawa Balewa University, Bauchi, adohmd@yahoo.com

*Corresponding author

 

Abstract

The role of government in the growth and development process of an economy has remained a contentious issue among economists and policymakers in developed and developing nations. While Keynesian economists present an argument for growth-inducing role of government expenditure on the economy, critics also argue that government participation in economic activities is fraught with inefficiencies and therefore an impediment to growth. A third dimension to the argument derives from whether or not the interaction between government expenditure and growth is linear or non-linear thereby raising the issue of whether there exists an optimum size of government expenditure for an economy. Over the years, fiscal operations in Nigeria show a steady increase in government expenditure vis-à-vis sub-optimal economic performance (measured by growth in GDP). Studies on government expenditure-economic growth nexus show mixed results. To contribute to literature on the subject, this study examines the relationship between government expenditure and economic growth to determine the extent to which output growth in Nigeria is affected by government spending. The study is based on historical data between 1981 and 2017. Government expenditure is analyzed in the study in its aggregate form and constituent parts, while controlling for inflation. The study shows significant short-run negative effect of lagged current expenditure on economic growth. It also shows strong positive effect of lagged capital expenditure on growth. However, within the scope of this study, there is no evidence of long-run effect of government expenditure on economic growth. This indicates non-sustainable pattern of government expenditure in Nigeria. It is therefore recommended that more funds be allocated to capital expenditure to enhance capacity for sustainable growth.

Keywords: Government expenditure, economic growth, economic performance.