Government Expenditure and Inflation Rate in Nigeria: An Empirical Analyses of Pairwise Causal Relationship

Abstract

The study investigates the nature and extent of causal relationship between government expenditure and inflation rate in a 42-year  period (1970-2011).Times series data obtained from the Central Bank's statistical bulletin of relevant years are analysed using descriptive(graphs and charts) and inferential(correlation,stationarity,Johansen's cointegration test and Granger causality test) analysis.The variables are stationary,weakly and inversely correlated and show longrun relationship.However,they did not granger-cause each other implying that there exists no pairwise causal relationship between them. We recommend appropriate fiscal-monetary policy mix,redirecting government expenditure to productive channels in the economy and maintaing a strategic balance between capital and recurrent expenditure.

Keywords: Government Expenditure;Inflation Rate;Pair-wise causal relationship; Granger causality test.