IMPACT OF GOVERNMENT EXPENDITURE ON ECONOMIC

Abstract

There is the belief that the continuous rising government expenditure may have not translated to meaningful economic growth and development since Nigeria still ranks among the poorest countries in the world. Consequently, there is a mixed feeling depicting whether increasing government spending induces economic growth in Nigeria or not, hence, the need for this paper. It analyzes the effects of government expenditure on economic growth in Nigeria and examines the direction of causality between the dependent and independent variables. Using annual time series data from 1986-2016 from the CBN statistical bulletin, the paper employed econometric tools, by adopting the ordinary least square (OLS) multiple linear regression techniques and the granger causality procedure. The unit root test showed that all variables are stationary at first difference. The granger causality test result showed that unilateral causality exists among the variables of interest. Both government capital and recurrent expenditures can be used to determine the value of real gross domestic product while the value of real gross domestic product cannot be used to determine government capital and recurrent expenditures. Also, the paper revealed that, there is a positive relationship between government expenditure and economic growth. In fact, the magnitude of the direct relationship showed that a percentage increase in government capital expenditure would cause the real gross domestic product to increase on average by about 0.16%. The paper therefore recommends that government should direct its expenditure towards the productive sectors like agriculture and manufacturing as it would increase productivity, also revenue base should be expanded, and government should ensure proper channeling of its expenditures so as to translate to meaningful output growth that can create jobs, ivealth and reduce poverty in the economy.