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IMPACT OF GOVERNMENT EXPENDITURE ON
ECONOMIC GROWTH IN NIGERIA: 2000-2015
ABSTRACT
The study
examined the impact of government expenditure on economic growth in Nigeria,
using the time frame 2000-2015 (5years).
More
specifically, the study sought to assess government expenditure and economic
growth.
The study
consist of staff in various departments of Oshodi-Isolo local government
council.
A stratified
random sampling technique is used for the study and population of one hundred
(100) staff of the various departments was studied, furthermore the research
design adopted primary and secondary data, which enable the design in making
decision on the data sourced research instrument sampling, plan and content
method, and it also enable the researcher obtain response and draw conclusion on
the research problem.
The study is
a survey research, having the major substance of analysis comprising of public
opinions, which were elicited by the means of questionnaire. Furthermore, the
data were presented with the aid of descriptive statistics, which is very easy
to understand make deductions, and the chi-squared technique was employed to
test the hypotheses in order to make valid conclusions.
Result from
the study indicated that government capital expenditure has contributed
significantly to economic growth in Nigeria between 2000 and 2015; and
Government recurrent expenditure has contributed significantly to economic
growth in Nigeria between 2000 and 2015.
Also the
relationship between government spending and economic growth is important for all
developing economies like Nigeria, most of which have experienced increasing
level of government spending and have achieved low level of economic
development overtime.
Base on
this, the study advised that Government capital expenditure needs to be based
on the capital projects the economy really need to develop and not basing the
expenditure on the wrong capital project., secondly, government should monitor
the level of productivity in relation to demand for them., all existing
infrastructural facilities that are in dilapidated state should be rebuilt and
mount up to international standard., thirdly, the government should invest more
on research so the economy can meet up with the new era technologies., and
lastly, The government should borrow less, while save and investment more.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The nexus
between government expenditure and economic growth has continued to generate
controversies among scholars. Government performs two major functions in an
economy namely protection (defense or security) and provision of certain public
goods (Robinson, etal, 2014). Protection function consists of the creation of
rule of law and enforcement of property rights. The protection function helps
in curtailing the occurrence of crimes, protects lives and properties and
protects the nation in entirety from external aggression. Furthermore, it is
also the responsibility of the government to ensure the adequate provision of
public goods such as roads, water, electricity, health, education, housing etc,
to improve the material wellbeing of the populace.
Some scholars
such as Abdullah (2010); Okoro (2013) and Robinson, etal, (2014) to mention a
few, argued that increase in government expenditure on socioeconomic and
physical infrastructures encourages economic growth. For example, government
expenditure on health and education has the tendency to raise the productivity
of labour and further stimulate the level of national output. Similarly,
government expenditure on physical infrastructures such as roads, power,
communication, water etc, reduces the cost of production by the manufacturing
sector, encourages private sector investment, enhances foreign investment,
raises the performance and profitability of firms and further propels economic
growth. Supporting these views, scholars such as Ranjan (2008) and Corray (2009)
adduced that that the enlargement of government expenditure contributes
positively to economic growth.
However,
some scholars such as Egbetunde and Fasanya (2013) and Taiwo and Kabir (2011)
did not support the assertion that increasing government expenditure promotes
economic growth. They rather adduced that higher government expenditure may
reduce the overall performance of the economy. For instance, in an attempt to
finance rising expenditure, government may raise taxes and/or borrowing. Higher
income taxation discourages individuals from working for long hours or even
searching for jobs. This in turn reduces income and aggregate demand. In
similar way, higher profit tax tends to increase the cost of production and
reduces investment expenditure; the private sector would be crowded out, thus
reducing private investment. Furthermore, in a bid to gain popularity and
federal acceptance, politicians and government officials sometimes increase
expenditure and investment on unproductive projects or in goods that the
private sector can produce more efficiently. Thus, government activity can
sometimes lead to misallocation of resources and retards the growth of national
output.
In Nigeria,
government expenditure has continued to rise due to large proceeds from the
production and sales of crude oil over years and the demand for public goods
have also been on the upward trend. Available statistics showed that total
government expenditure (capital and recurrent) have continued to rise in the
last three decades. For instance, total recurrent expenditure rose from N461,
600 million to N1, 589, 270 million between 2000 and 2013. In the same manner,
the composition of government recurrent expenditure showed that expenditure on
defense, internal security, education, health, construction, transportation and
communication increased as well between 2000 and 2013. The capital expenditure
stood at N239, 450 million and N860, 230 million in 2000 and 2013. Furthermore,
the various components of capital expenditure (defense, health, education,
transportation and communication) have been on the increased as well during
those periods. (CBN, 2014).
The
relationship between government spending and economic growth is important for
all developing economies like Nigeria, most of which have experienced
increasing level of government spending and have achieved low level of economic
development overtime. Since independence, the revenues accruing to Nigeria has
been on the increase annually. Also public spending incurred by the government
has been on the upward trend over years, despite this, Nigeria is still
bedeviled with poor level of productivity in relation to demand for them,
dilapidated state of existing infrastructural facilities, low level of
technology, high rate of unemployment, dearth of functional and effective
infrastructures, epileptic power supply, low per capita income, low savings and
investment and many more.
1.2 TATEMENT
OF PROBLEM
Unfortunately,
rising government expenditure has not translated into meaningful improvement in
the standard of living of the people as Nigeria ranks among the poorest
countries in the world. In addition, majority of Nigerians have continued to
live in abject poverty, with more than 50% living on less than US$2 per day.
Coupled with these, dilapidated infrastructures especially roads and power
supply has led to the collapse of some local industries and migration of some
multinational firms, which has escalated the unemployment rate in the country.
Moreover, macroeconomic indicators such as balance of payments, inflation rate,
interest rate, exchange rate, national savings, per capita income reveal that
Nigeria has not fared well in the last couple of years.
1.3 OBJECTIVE
OF THE STUDY
The study
seeks to examine the impact of government expenditure on economic growth in
Nigeria. Specifically, the study is targeted to
Examine the impact of government capital
expenditure on economic growth in Nigeria.
Examine the impact of government recurrent
expenditure on economic growth in Nigeria.
1.4 RESEARCH
QUESTIONS
Based on the
objectives stated above, the study attempts to provide satisfactory answers to
the following research questions
What is the impact of government capital
expenditure on economic growth in Nigeria?
What is the impact of government recurrent
expenditure on economic growth in Nigeria?
1.5 RESEARCH
HYPOTHESES
In line with
objectives of the research and the questions of interest, the following
hypotheses are therefore stated:
H01: Government capital expenditure has not
contributed significantly to economic growth in Nigeria between 2000 and 2015
H02: Government recurrent expenditure has
not contributed significantly to economic growth in Nigeria between 2000 and
2015
1.6 METHODOLOGY
The study
empirically assesses the impact of government expenditure on economic growth in
Nigeria. To this end, the instrument to be used for the collection of data for
the purpose of this research is questionnaire. Data related to this research
work will be analyzed using percentage and simple statement as referred to the
information collected from respondents through the research questionnaire.
The
statistical analysis adopted was correlation. All computations requiring the
use of data analysis technique were accessed by a computer statistical software
package called SPSS (Statistical Package for Social Sciences) to estimate the
impact of government expenditure (capital and recurrent) on economic growth in
Nigeria. The choice of this technique is informed by the desirable properties
of the correlation such as unbiasedness, minimum variance, consistency,
sufficiency and linearity.
1.7 JUSTIFICATION
FOR THE STUDY
Nigeria has
been incurring large amount of expenditure on capital projects and recurrent
expenditure. Despite this huge expenditure, no meaningful inclusive growth has
been recorded in the economy. Furthermore, increased government expenditure has
failed to significantly improve the material wellbeing of the citizenry.
Moreover,
the existing physical infrastructures especially roads and power supply have
not been in good shape over years. Also, infrastructures in critical sectors
such as education and health, which constitute the basic human capital
development, have continued to deteriorate in recent times. Little wonder, the
reason for the low level of human capital formation in Nigeria. Government
expenditure alone does not secure growth and development, but expenditure
directed to enhance the quality of living of the masses guarantees sustainable
economic growth and development. It is therefore on this basis, the study was
necessitated to examine the impact of government expenditure in recent period-
2000-2015.
1.8 SCOPE OF THE STUDY
The study is
delineated to examine the effect of government expenditure on economic growth
in Nigeria for the period, 2000-2015. This time frame was picked in order to
examine recent trend in government expenditure and economic growth in the
Nigerian economy.
1.9 LIMITATION OF THE STUDY
During the
course of carrying out the study, several limitations were encountered. They
were:
a) Dearth of
Research Material: The research materials available to the researcher are
insufficient, thereby limiting the study.
b) Time
Constraint: The time frame given to conduct this study is relatively short
considering the other academic commitment and dedication of the researcher.
1.10 DELIMITATION
In research
studies of this nature, there is normally the enthusiasm to touch as many areas
as possible which are connected to this subject matter. However due to the
exclusive nature of this work, those topics of interest can only be briefly
examined.
1.11 ORGANISATION
OF THE STUDY
The study
contains five chapters. The first chapter is the introductory part of the
study. Chapter two reviews relevant literature found applicable to the study.
Chapter three focuses on the trend in government expenditure and economic
growth in Nigeria. Chapter four delves into the research methodology and
empirical analysis. The last chapter focuses on the summary of research
findings, conclusion.
1.12 DEFINITON OF TERMS
Capital
Expenditure- It is a component of government expenditure incurred on capital
projects such as roads, railways, telecommunications, electricity and the like.
This kind of expenditure involves huge amount of money and is not incurred on
regular basis.
Recurrent
Expenditure- It is a component of government expenditure incurred on regular
basis such as wages and salaries, interest on loans, general administration and
maintenance.
Government
Expenditure- This refers also to public expenditure. It is the total
expenditure incurred by the government for its maintenance of itself as an
institution and to ensure the provision of public goods to citizenry.
Economic
Growth- This is the quantitative increase in the volume of a country’s level of
productivity or GDP between two consecutive quarters.
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