Effect of Government Capital Expenditure on Manufacturing Sector Output in Nigeria

Abstract

The study examined the effect of government capital expenditure on the Manufacturing Sector Output (MSO) in Nigeria from 1981 to 2020. The ex-post facto research design was adopted for the study because the data used were sourced from the Central bank of Nigeria (CBN) 2020 Statistical Bulletin and the World Bank data indicators. The MSO was used as the dependent variable while the government capital expenditure which was disaggregated into government capital expenditure on administrative services (GCEXA), government capital expenditure on economic services (GCEXE), government capital expenditure on social and community services (GCEXS) and government capital expenditure on transfers (GCEXT), were used as the explanatory variables. The Auto-Regressive Distributed Lag (ARDL) model method of analysis was employed for the study. The F-bound test revealed that there is a long-run equilibrium relationship amongst the variables; hence, the Error Correction Model (ECM) was further employed to ascertain the short-run relationships and the speed of adjustment should there be any disequilibrium in the model. The study found that the GCEXA and GCEXT have a long-run positive relationship with the MSO while the GCEXE and GCEXS have a long-rum negative relationship with the MSO. Also, all the variables have significant effects on the MSO except the GCEXS which has an insignificant on the MSO. The study recommends that; Since the Nigerian government capital expenditure on administrative services, economic services and transfer services are have long run significantly effect on the manufacturing sector, the government is advised to increase its budgetary allocation on these components of the capital expenditure; while allocation of capital expenditure to social and community services should be reduced. By so doing, the aim of the capital expenditure which is economic growth will be achieved through the increase in the manufacturing output.