Government Expenditure and Its Implication for Economic Growth: Evidence from Nigeria

Abstract

Government Expenditure is an important macroeconomic objective in an economy. In this study, the structure and size of government expenditure determine the pattern of growth in the economy. The Keynesian aggregate expenditure is adopted as a framework to explain the role of government spending on output. The Johansen cointegration test was applied to verify the long run relationship between the variables and the Granger causality test was employed to determine the existence and direction of causation between government expenditure and economic growth. The autoregressive distributed lag (ARDL) methodology was employed to examine the relationship between the independent variables and the dependent variable. From the analysis and findings, government spending significantly and positively explained the economic growth of the country. The relationship was significant at 5 percent level. In comparing the results of the total government expenditure with capital and recurrent expenditure, the result shows that they are positively related to economic growth however the recurrent component of the expenditure significantly explained more. Therefore, it is recommended that the government should give more priority to the capital component that is more productive and can induce rapid economic prosperity.

Keywords: Government expenditure, economic growth, ordinary least square