Does Government Expenditure Stimulate Employment Generation? A Disaggregated Empirical Evidence from the Nigerian Economy

Abstract

The direction and degree of relationship between government spending and reduction in unemployment has continued to generate series of debate among scholars. To empirically establish this relationship in the context of Nigeria, motivated this study. Secondary data sourced from the CBN Statistical bulletin were used to experiment on the disaggregated impact of government expenditure on administration, economic services, social community services and transfers have on the rate of unemployment in Nigeria. The Error Correction econometric model (ECM), the Johansen cointegration and the Granger causality tests were the central analytical tools used in the study. Our stationary test showed that the variables were non-stationary at levels but all were stationary at first difference. In the short-run, a positive relationship was observed. The short-run coefficient of economic services and unemployment was observed to be negative and the direction of causality was from government expenditure on economic services. Expenditure on social community service observed negative and statistically and observed a weak causal influence on unemployment. This highlights the unique case of underdeveloped nature of Nigerian economy. Interestingly, government expenditure on Administration were found to be positive and statistically significant and the direction of causality was from government expenditure on administrative expenses. However, there was no causal relationship between government expenditure on transfers and unemployment. There is, therefore, the need for policy makers to keep an eye on the trend and effects of changes in expenditure on administration and economic services, given that the result indicates that expenditure on them explains the employment behavior in Nigeria.

Keywords: Government expenditure, disaggregated impact, employment generation

DOI: 10.7176/JESD/10-16-01

Publication date: August 31^st 2019