Consumption Expenditures as Key Drivers of Economic Growth and Manufacturing Expansion in Nigeria

Abstract

This study has two goals: first, to investigate the effects of private and government consumption expenditures as well as imports and exports on economic growth in Nigeria. Second, to analyse the implications of these expenditures for manufacturing sector expansion given the special growth-enhancing properties of manufacturing as articulated in the theoretical and empirical literature. Our estimations of the three models specified for the study are based on the Nigeria time-series data from the World Development Indicators database between 1981 and 2019 using Pesaran’s ARDL regression methodology after testing the trend properties of the series. The validity and reliability of regression results were certified by the regression diagnostics.Our findings support significant positive effects of private consumption expenditure and exports on economic growth while government consumption expenditure and imports exert a significant negative impact on growth. These two expenditures that grow the economy neither significantly expand nor decrease manufacturing as the positive impacts of private consumption expenditure and the negative impacts of exports were insignificant. The negative effects on manufacturing of government consumption expenditure and imports were not significant. However, economic growth was found to significantly expand manufacturing activities. We conclude that over two-thirds of Gross Domestic Product expenditures constitute a leakage from the economy being insignificant to drive manufacturing expansion. The resultant loss of the flow of growth-enhancing externalities from manufacturing to other sectors of the economy may constrain future economic growth or cause the economy to grow in an unsustainable manner.

Keywords: consumption, government expenditure, economic growth, manufacturing, exports.

DOI: 10.7176/DCS/11-1-05

Publication date: January 31^st 2021