STATISTICAL ANALYSIS OF THE RELATIONSHIP BETWEEN GROSS DOMESTIC PRODUCT (GDP) AND GOVERNMENT EXPENDITURE IN NIGERIA

CHAPTER ONE

1.0 INTRODUCTION

Gross Domestic Product (GDP) is one of the major macroeconomic indicators used in measuring the level of economic growth in the country. GDP has often been used in assessing the impact of some economic variables and has always appeared in all economic statistical tables showing its importance. Government expenditure, to an extent, is a branch of economics that deal with the performance structure, behavior and decision making of economy as a whole rather than individual market. Other macroeconomics indicators include unemployment rate, price indices, population growth rate among others. As a macroeconomic component, GPD provides a statistic used in understanding the overall interactions of economic variables over a period of time. These macroeconomic indicators provide insight into the economic performance of a given country.

A good deal of effort has put by both government and private organizations towards increasing the nation GDP. Advance in technology, accumulation of machinery other capitals, better education and human capital all lead to increase in economic output over time. However, output does not always increase consistently. Business cycles can cause short-term drop in output called recession. Economist looks for macroeconomic policies that prevents economics from slipping into recession and that lead to faster long-term growth. Given the level of concern put in by the Government, private organizations, foreign investors, etc towards all overall economic growth and economic development of the nation, yet less result is seen as the per capital income of Nigerians keeping dropping per year. This observation prompted the need to conduct a statistical analysis of the relationship between GDP and Government Expenditures covering the period between 2001 through 2015.

1.1 BACKGROUND OF THE STUDY

All countries regard macroeconomic growth as their primary objectives; these objectives embrace the need to raise the income, economic capabilities and the standard of living (wellbeing) of their people. The Gross Domestic Product (GDP) is a basic measure of the total market value of all final goods and services produced in a country in a given year, equal to the total consumer investment and government expenditure, plus the value of export, minus the value of import. However, GDP is often used as an indicator with the rational being that all citizens could benefit from their country increase economic production. The major advantage of using GDP per capital as an indicator of the standard of living is because, it is widely frequently and consistently measured as most countries provides GDP data on quarterly basis allowing trends to be seen quickly, it is measured consistently among countries. Most critics regarding GDP concentrate on its focus on economic data and not on people prosperity. However, even economist Simon Kuzents who introduced the term in the “National income, 1929-1932 congress report, mentioned explicitly that the Welfare of the nation can scarcely be inferred from a measurement of national income.” The GDP index has an economic focus; therefore, it is not affected by variables hard to measured such as voluntary labor and real unemployment.

Private consumption Expenditure is the primary measure of consumer spending on good and services in the Nigerian economy. It accounts for about two-thirds of domestic final spending and thus it is the primary engine that drives future economic growth.

Government Consumption Expenditure is transaction of the national accounts, use of incomes account representing government expenditure on goods and services that are used for the direct satisfaction of individual needs (individual consumption) or collective needs of members of the community (collective consumption). It consists of the value of goods and services produced by the government itself other than own account capital formation and sale and purchase by the government, goods and services produced by market producers that are supplied to household.

Gross capital formation is a concept used in macroeconomics, national accounts and financial economics occasionally it is also used in corporate accounts. In a much broader or vaguer sense, the term “Gross Capital formation” has in more recent time been used in financial economics to refer saving, drives, setting up financial institutions, fiscal measures, public borrowing, development of capital market privatization of financial institution. The capital could be “formed” in the sense of “being brought together for investment purposes” in many different ways Gross capital is the total value of gross fixed capital formation plus net acquisition less disposals of valuables for a unit or sector.

An import is a goods brought into a jurisdiction, especially across a national border from external source, the party bring in the goods is called an importer.

An export is a function of international trade whereby goods produced in one country are slipped to another country for future sales or trade. The sales of such goods adds to the producing nations gross output if used for trade, exports are exchanged for other products or services in other countries.

1.2 STATEMENT OF THE PROBLEM

One of the lingering challenges of economic development facing most developing countries is the inability to mobilize sufficient resources to implement their economic and social growth (development) agenda encapsulated in the United Nation Millennium Development Goals(MDGs). It’s estimated that most African countries including Nigeria will miss the target set under MDGs due to inability to mobilize sufficient domestic and external resources to finance the level of investment required to achieve by MDGs. Since the inverse relationship appears to be existing between effort being made to boost standard of living and the actual benefits from the county’s increased economic production by the citizen’s. it is for these reasons, that this research seeks to know.

1. Why is the standard of living in Nigeria poor?

2. What policy will the policy marketer make to increase the growth of the GDP of the country? The result obtained in this research work will be beneficial to government, young research etc.

1.3 RESEARCH HYPOTHESIS

1. Ho: There is no relationship between Gross Domestic Product and Federal Government Expenditures.

HI: There is a relationship between Gross Domestic Product and Federal Government expenditures.

1.4 OBJECTIVE OF THE STUDY

1. To find a relationship between Gross Domestic Product and other economic variables (Government consumption expenditure, private consumption expenditure Gross capital formation export and imports services).

2. To determine the respective contributions of the other economic variables to GDP.

1.5 SCOPE OF THE STUDY

The research work is limited to Nigeria economy. The data was collected for the immediate past 15years on the Gross Domestic Product (GDP), private consumption Expenditure, Government Consumption Expenditure, Gross Capital formation, Export and Import millions naira.

1.6 SIGNIFICANT OF THE STUDY

The relative contributions of the other economic variables to GDP will provide a policy direction on the improvement of GDP and consequently on the standard of living of the people of Nigeria. It will also be useful to guide young researchers who wishes to improve or write on any topic related to this.

1.7 THE LIMITATION OF THE DATA INCLUDES;

1. The data did not include the method used in the data collection.

2. The data may have been collected by unskilled labor, who are not expert on the field. that is, statisticians did not primarily collect the data and hence there might be error in the data.

3. The data did not take into account activities in the informal economy.

1.8DEFINITION OF TERMS

1. The gross domestic product (GDP): This is a monetary measure of the market value of all final goods and services produced in a period of time usually quarterly or yearly.

2. Per capital gross domestic product: this is a measure of the total output of a country that takes gross domestic product (GDP) and divides it by the number of people living in the country.

3. Government consumption expenditure: This is the sum of government spending on final goods and services. It includes salaries of public servants, purchase of weapons for the military and any investment expenditure by government. It does not include any transfer payment such as social security or unemployment benefits.

4. Private consumption expenditure: this is the market value of all goods and services including duration products such as cars, foods, clothing and home computer by household, medical expenses and so on but does not include new housing.

5. Import (Gross Import): purchases of domestic buyers of goods and services that were produced abroad.

6. Export (Gross Export): this is the amount a country produces including goods and services produced for other nation’s consumption.

7. Gross Capital Formation: this is the sum of gross fixed capital formation

(= acquisition less disposal of fixed asset plus improvement to land), investment (= value of finished goods plus fuels and work in progress). And valuables (= goods of value not used in consumption).

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