THE IMPACT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA (1981–2023)

CHAPTER ONE

INTRODUCTION

1. Background of the Study

The relationship between government expenditure and economic growth in any economy, especially in the Less Developing Countries (LDCs) has remained an unending critical subject of debate amongst scholars, analysts, etc (Okulegu, 2013). Thus, arguments arise as to the real effects and consequences of government spending in determining the overall growth level of any economy, as well as its strength in reducing poverty. In an ideal macroeconomic setting, government expenditure remains a strong catalyst to foster sustainable economic growth and ensure poverty alleviation. This, therefore, follows that the prime aim in public spending is to improve the workings of the economy through an impressive gross domestic product (GDP) growth rate and improved standard of living among the citizens.

Government expenditure involves all government consumption, investment, and transfer payments. Prior to the 19^th century, public expenditure was limited owing to laissez-faire philosophies of the early Classical economic thinkers. However, in the 20^th century, John Maynard Keynes negated this notion, and argued that the role of public expenditure was crucial and strategic in determining the levels of income and distribution in the economy. To this end, public expenditure plays a catalytic role in the economy as it establishes fiscal policy and provides goods and services for the households and firms. Since the inception of the public expenditure principles as one of the key engines of economic growth, every economy (developed and developing) has manifested a growing concern in the trend of the annual budgetary allocations to the critical sectors engendering and engineering economic growth and development.

The figure above depicts the trends of both the recurrent and capital expenditures of the Federal Government of Nigeria (FGN) over the decades. Interestingly, the trajectory of the government spending has been very impressive in amounts. Thus, over the years, the government of Federal Republic of Nigeria has been increasing and widening each fiscal year (FY). However, the bulk of this spending was basically on consumption alone (recurrent spending); as just an infinitesimal amount of the annual budgets are being channeled into infrastructural developments (capital spending). The latter, according to the Keynesian school of Marginal Efficiency of Capital and Lerner’s school of Marginal Efficiency of Investment, makes for even development of any economy; increasing the multiplier-accelerator interactions in the economy, as well as increasing the welfare of the citizens via robust income redistribution.

Interestingly, the above shows that the trend of GDP has remained an increasing one; thus, representing a significant growth of the economy. However, the history of the Nigerian economy has shown a worsening situation of poverty; compromising the welfare of the citizens, through an inefficient and inequitable distribution of resources, orchestrated by corrupt and dubious exhibitions by those in the helms of economic affairs.

Notably, recurrent spending alone was pegged at N13, 563.8 billion whereas capital expenditure remained so low at N4, 712.8 billion. The gap between these amounts is a pointer to the fact that Nigerian economy compromises production to consumption. This has led economic wastages through various nomenclatures as Tradermoni, Conditional Cash Transfers, etc. The resultant of these none productive wastages is the widening gap in poverty rates. Little wonder, the National Bureau of Statistics recently pegged the poverty rate in Nigeria to 40.01 percent (NBS, 2024).

1. Statement of the Problem

Nigeria, which has always been rated as Africa’s largest economy, still struggle with increasing penury and slow economic growth notwithstanding her huge natural resources (World Bank, 2022). However, available statistics has it that government expenditure (especially recurrent expenditure) has more than doubled. Historically, the public expenditure in Nigeria has clearly indicated that between 1981 and 1989, recurrent expenditure averaged N13.5 billion, N181.78 billion between 1990 and 2000, N1, 502.67 billion between 2001 and 2010, N7, 354.51 billion between 2011 and 2022. Similarly, capital expenditure averaged N8.98 billion between 1981 and 1989, N184.34 billion between 1990 and 2000, N618.18 billion between 2001 and 2010, N2, 309.13 billion between 2011 and 2022. The above figures represent an impressive economic growth through the GDP. Given the above statistics, it is not an understatement to say that the Nigerian economy has overgrown and overdeveloped following its expenditure patterns over the years. However, it remains a paradox how moribund the infrastructural facilities in the economy are despite the observed increasing government expenditure in each fiscal year (FY). Additionally, the issue of corruption and misappropriation of public funds has remained uncured in the health of Nigerian economy. Notably, tracing the exact influence of government expenditure on economic growth or the influence of economic growth on government expenditure has generated various scholarly arguments and incongruent research findings and conclusions. However, empirical evidence has indicated a lack of quality analysis to practically estimate the causal relationship between these key variables in the contemporary times. It, therefore, behooves the present study to empirically determine the causal relationship between government expenditure and economic growth in Nigeria, while employing gross domestic product per capita as the dependent variable; so as to ascertain the direct of the government expenditure on the populace in the economy.

To say the least, it is belittling to still observe that the majority of Nigerians are still wallowing in abject poverty amidst hyperinflationary pressures, despite various impressive growth enhancing and pro-poor growth policies initiatives advocated or pursued both in the past and presently usually tagged “National Development Plans”. On this premise, the present study questions the efficiency of the Nigerian government expenditure in fostering economic growth; thus, the thrust of the study to empirically evaluate the impact of government expenditure on economic growth in Nigeria.

1. Research Questions

The present study will provide answers to the following questions.

What is the impact of government recurrent expenditure on economic growth in Nigeria?
What is the impact of government capital expenditure on economic growth in Nigeria?
What is the direction of causality relationship between government expenditure and economic growth In Nigeria?
1. Objectives of the Study

The central objective of this study is to investigate the impact of government expenditure on economic growth in Nigeria. The offshoot objectives include:

To evaluate the impact of government recurrent expenditure on economic growth in Nigeria.
To analyze the impact of government capital expenditure on economic growth in Nigeria.
To determine the direction of causality between government expenditure and economic growth in Nigeria.

Research Hypotheses

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