An Analysis of the Macroeconomic Determinants of Public Capital Spending in Nigeria

Abstract

This paper examines the macroeconomic determinants of public capital spending in Nigeria. It reveals the daunting challenge of poverty (poor roads and portable water, poor health care delivery system, inadequate power supply, low quality of education, unhygienic environment and unreliable security system for life and property) that Nigeria exhibits simultaneously with the declining trend and unstable pattern of public capital spending. Although, the nominal values of public capital spending over the years reveal huge allocations; the real values mirror an overwhelming decline, as four-fifths of Nigeria’s spending is on consumption. Public capital spending plays an undeniable significant role in the growth and development of any nation since it spurs private investment and invariably the general productivity level. The need to reverse this persistent decline in public capital spending in Nigeria necessitates this study. This paper attempts to test for the macroeconomic determinants of public capital spending using Error Correction Mechanism (ECM).  The ECM term revealed a significant long term relationship among the variables, with the coefficient being negative and large enough for a feedback of approximately 0.64. Real Gross Domestic Product, budget deficit, government debt, trade openness, public debt servicing, private investment, foreign direct investment and previous public capital spending were found to explain public capital spending while degree of urbanisation did not have any effect on public capital spending.

Keywords: Error Correction Mechanism, public capital spending, macroeconomic determinants