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THE IMPACT
OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA (1990-2010)
ABSTRACT
The project research on “the impact of
government expenditure on economic growth in Nigeria” assess the successive
ways Nigeria government spends her revenue, the impacts such spending have on
the economy. It positive and negative impact and how much it affects the gross
domestic product (GDP) in Nigeria. Most importantly, this work focuses on the
impact of government expenditure on the Nigeria economy in particular and the
economic growth in general. The scope of this research covers from 1990-2010,
This study is strictly organized in five chapters just as fact and figures are
analyzed from empirical stand point on this bases a statically and econometric
approach are employed. OLS method is used in estimating. T test is used for
testing the significance or regression coefficients. The Durbin Watson (DW)
statistic is used to test the presences of autocorrelation from working
hypothesis.
TABLE OF CONTENT
CHAPTER ONE
1.0 Introduction
1.1 Background of the study
1.2 Statement of the study
1.3 Objectives of the study
1.4 Hypothesis of the study
1.5 Significances of the study
1.6 Scope and limitation of the study
1.7 Organization of the study
CHAPTER TWO
2.0 Literature Review
2.1 Theoretical literature review
2.2 Empirical
CHAPTER
THREE
3.0 Methodology
3.1 Model specification
3.2 Methods of evaluation
3.3 Decision rule
3.4 Data required and sources
CHAPTER FOUR
0.4
Presentation and analysis of result
4.1
Empirical result
4.2
Examination of the parameter sign
4.3
Statistical test of significance
4.4 Second
order test
4.5
Evaluation of the working hypothesis
4.6
Implication of result
CHAPTER FIVE
5.0 summary of the findings, conclusion and
recommendation
5.1 Summary of the finding
5.2 Conclusion
5.3 Recommendation
Reference
Appendix
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the study
Following
the suggestion of John Marynard Keynes, Government have been playing serious
role for most economics of the world, government usually inter-vanes in most
economy to achieve macro-economic goals, price stability, creation of
employment achieve industrialization and maintain a reasonable level of
economic growth. The government of Nigeria is not left out in this quest
The
relationship between government expenditure and economic growth has continued
to generate series of debate among scholars, government performs two (2)
functions, one protection (i.e. security) and provisions of certain public
goods by Abdullah HA, 2000 and AL- You sift Y, 2000). Protection function
consists of the creation of rule of law and enforcement of property rights.
This helps to minimize risk of criminality, protection of life and property,
and the nation from external oppression. Under the provision of public goods
are defense, roads, education health and power, etc. some scholars argue that
increase in government expenditure on socio- economic and physical
infrastructures encourage economic growth for example. Government expenditure
on health and education raises the productivity of labour and increase the
growth of national output. Similarly, expenditure on infrastructure such as
roads, communication power, etc. reduces production costs, and increase private
sector investment and profitability of firms, thus festering economic growth.
Supporting this view, scholars such as (AL-Yousif Y, 2000 ) (Abdullah HA 2000)
(ranjan KD 2000) concluded that expansion of
government expenditure contributes positively to economic growth.
However, some scholars did not support
the claim that increasing government expenditure promotes economic growth,
instead they assert that higher government expenditure may slowdown overall
performance of the economy. For instance, in an attempt to finance rising
expenditure government may increase faxes and / or borrow to solve the
situation. Higher income tax discourages individual from working for long hours
or even searching for jobs. This in turn reduces income and Applegate demand.
In the same vein, higher profit tax tends to increase production costs and
reduces investment as well as profitability of firms. Moreover, if government
increase borrowing (especially from banks) in order to finance its expenditure,
it will complete (romds- out) away the private sector thus reducing private
investment, furthermore, in a bid to score cheap popularity as they continue to
remain in power, politician and government officials sometimes increase
expenditure and investment in unproductive projects and in goods that the
private sector can produce more efficiently. Thus, government activity can
sometime produces misallocation of resources and impedes the growth of national
output. In fact, studies by (Laudew D, 1986 Barro R, 1991, and foster S,
Henrekson M 2001) suggest that large government expenditure has negative impact
on economic growth.
In Nigeria, government expenditure has
continued to rise due to the huge receipts from production and sales of crude
oil and the increased demand for public goods like roads, communication, power,
and education health. Besides, there is increasing need to provide both
internal and external security for the people and the nation. Available
statistics show that total government expenditure (capital and recurrent) and
its components have continued to rise in the last three decades. For instance,
government total recurrent expenditure increased from N3, 819.20 million in 1977
to N4, 805.20 million in 1980 and further to N36, 219.60 million and N1,
589,270.00 million in 2000 and 2007, respectively. In the same manner,
composition of government recurrent expenditure shows that expenditure on
defense, internal security, education health, agriculture, construction and
transport and communication increased during the period under review.
Government capital expenditure rose from
N5, 004.60 million in 1980 and further to N24, 048.60 million in 1990. The
value of capital expenditure stood at N239, 450.90 million and N759, 323.00
million in 2000 and 2007, respectively. Furthermore, the various components of
capital expenditure (that is defense, agriculture, transport and communication
education and health) also show a rising trend between 1977 and 2007. (Central
bank of Nigeria statistical bulletin, 2008) unfortunately, rising government
expenditure has not translated to meaningful growth and development as Nigeria
ranks among the poorest countries in the world. In addition, many Nigeria have
continued to wallow in object poverty, while more than 50 percent live on less
than US$ 2 per day. Couple with this is dilapidated infrastructure (especially
roads and power supply) that has led to the collapse of meaning industries,
including high level of unemployment. Moreover macroeconomic indicator like
balance of payments, import obligation, inflation rate, exchange rate and
national saving reveal that Nigeria has not fared well in the last couple of
years (central bank of Nigeria statistical bulletin 2008)
Given the issues raised above, this
research work tries to assess the impact of government expenditure on economic
growth in Nigeria.
1.2 Statement of the Problem
As stated
earlier, the intent of government for the economy is generally positive, hence
government expenditure is targeted towards achieving this goals. Over the years
in Nigeria, the federal government have been spending on the economy as we see
increase on receipts from production and sales of crude oil, and the increased
demand for public goods, like roads communication power, education, health etc
but in most cases the intent of these spending are not realized due to some
reasons like, corruption, misplacement of priority low level of implementation
and policy dis-continuity, it is also been argued in some quarter that
government expenditure, possess danger to the Nigeria economy instead of
improving it. The high level of corruption is posited to be the cause of this,
thus this work therefore tries to answer the following questions.
1. What are the intent of government
expenditure in Nigeria?
2. Do government expenditure have impact on
economic growth in Nigeria?
3. Are there possible recommendations that will
help improve the situation?
1.3 Objectives of the Study
In the
course of this research the following objectives will be meet.
1. The intent of recent government expenditure
in Nigeria will be examined (explore)
2. To assess the impact of government
expenditure in Nigeria
3. Policy recommendation based on the findings
of the research will be made.
1.4 Hypothesis of the study
The
following hypothesis will guard this research
Ho: Government expenditure has no significant
impact on
economic
growth in Nigeria.
H1: Government expenditure has significant impact
on
economic
growth in Nigeria.
1.5 Significance of the study
The
important of assessing the impact of government expenditure are quite numerous.
This study is therefore important to the following groups,
Firstly, the federal government, state
government etc in Nigeria will find this work important because it will guard
their future spending.
Secondly, the ministry of finance
(ministry that controls and administer government spending) other ministry,
departments and agencies (MDAS) and other government parastatals will find this
work relevant as it helps to educate and guide them in making recommendation to
the government on where and what to
spend on.
Thirdly, the private sector and the
general public will find this work important as they will learn through this
work on how to pre-empt,
Finally, this work serve as a point
reference to subsequence researchers just as it add to existing literatures.
1.6 Organization of the study
The study is
structured and presented in five chapters. Chapter one introduces the study, it
gives the background of the study, shows the statement of the problems and also
reveals the objectives, significance, scope and limitation of the study. More
importantly, the hypothesis is also presented in chapter one. Chapter two
features the review of existing literatures on the research topic. It also
analyses the various theoretical approaches to the study. Chapter three deals
mainly with methodology of the study. It focuses on data collection, research
designs, and instruments of measurement and model specifications. Data
presentation and analysis of findings are the hall mark of chapter four. Also
hypothesis testing are also carried out in same chapters followed by result
interpretation chapter five discuss summary of the findings, offer conclusions
and useful recommendations.
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