Public Expenditure and Economic Growth Nexus in Nigeria: A Time Series Analysis

Abstract

This study examines the link between government spending and economic growth in Nigeria over the last three decades (1977-2006) using time series data to analyze the Ram (1986) model. Three variants of Ram (1986) model were developed-regressing Real GDP on Private investment, Human capital investment, Government investment and Consumption spending at absolute levels, regressing it as a share of real output and regressing the growth rate real output to the explanatory variable as share of real GDP, in other to capture the precise link between public investment spending and economic growth in Nigeria based on different levels.                  Empirical result showed that private and public investments have insignificant effect on economic growth during the period under review. The paper test for presence of stationary using Augmented Dickey Fuller (ADF) unit root test result reveals that all variables incorporated in the model were non-stationary at their levels. In an attempt to establish long-run relationship between public expenditure and economic growth, the result reveals that the variables are cointegrated at 5% and 10% critical level. With the use of error correction model to detect short run behaviour of the variables, the result shows that for any distortion in the short-run, the error term restore the relationship back to its original equilibrium by a unit. The paper main policy recommendation was that government spending should be channel in order to influence economic growth significantly and positively in Nigeria especially on education and infrastructural facilities.

Keywords:Government spending, public infrastructure, economic growth, human capital investment, Government investment.