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.
