An Empirical Analysis of the Effect of Government Expenditure on Economic Growth in Nigeria (1981-2013)

Abstract

The study adopted the ex-post facto research design using the ordinary least square regression analysis to estimate the model specified. Real Gross Domestic Product (RGDP) was adopted as the dependent variable while government capital expenditure (CAPEXP) and government recurrent expenditure (RECEXP) represent the independent variables. Two hypotheses which flowed from the research questions were tested with the application of Granger Causality Test, Johansen Rank Cointegration Test and Error Correction Mechanism. There is a confirmation of the existence of a long run relationship and an indication that 2 cointegrating vectors exist at 5% level of significance. From the results, RECEXP Granger Cause RGDP while RGDP Granger Cause RECEXP. CAPEXP Granger Cause RGDP while RGDP Granger Cause CAPEXP. CAPEXT Granger Cause RECEXP while RECEXP does not Granger Cause CAPEXP. Thus, the study recommends amongst others, increased investment on the productive sectors of the economy, such as infrastructure, education and health. However, government should plug all leakages that have hitherto hindered effective and commensurate results from government spending in the past.

Keywords: Government expenditure; Economic growth; OLS; Nigeria.