GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA: A DISAGGREGATED ANALYSIS

GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA: A DISAGGREGATED ANALYSIS (ECONOMICS PROJECT TOPICS AND MATERIALS)

ABSTRACT

This study examines the disaggregated effect of government expenditure on economic growth in Nigeria. In the introductory section, the reason why government expenditure has been on the increase over the years in Nigeria was analyzed. We started by stating the objectives of the study which include; role of government expenditure, trend of government expenditure, component of government expenditure. In the study, we use Ordinary Least Square (OLS) technique, since it is basically a time series study. The result obtained, indicate that the economic growth in Nigeria is affected by government expenditure on agriculture, education, health and transport. However, the result indicates only government expenditure on health is not significant in explaining economic growth in Nigeria. The R- square suggest that the explanatory variable explain 62 percent of the variation in economic growth, while the F- statistics shows that all the put together are statistically significant in explaining increase gross domestic product. The study however, concludes that the relevance of the variable imposes a great challenge to policy makers and recommends that the government of Nigeria should help in the pursuance of an increase level of economic activities in the country.

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

The relationship between government expenditure and economic growth has continued to generate series of debate among scholars. Government performs two functions­-Protection (and security) and Provision of certain public goods (Abdullah, 2000) and (AI – Yousif, 2000). Protection function consists of the creation of rule of law and enforcement of property right. This helps to minimize risk of criminality, protect life and property, and the nation from external aggression. Under the provision of public goods are defenses, roads, education, health and power, to mention few. Some scholars argue that increase in government expenditure on socio – economic and physical infrastructure encourages economic growth. For example, government expenditure on health and education rises to productivity of labor and increase the growth of national output. Similarly, expenditure on infrastructure such as roads, communications, power, etc, reduces production, cost, increase private sector investment and profitability of firms, thus fostering economic growth. Supporting this view, scholar such as (Al – Yousif, 2000), (Abdullah HA, 2000), (Ranjan, Sharma, 2008), and (Cooray, 2000) concluded that expansion of government expenditure contributes positively to economic growth. However, some scholar did not support the claim that increasing government expenditure promotes economic growth, instead they are assert that higher government expenditure may slow down overall performance of the economy. For instance, in an attempt for finance rising expenditure, government may increase taxes and/or borrowing. Higher income tax discourages individual from working for long hours or even searching for jobs. This in turn reduces income and aggregate demand. In the same vein, higher profit tax tends to increase production costs and reduce investment expenditure as well as profitability of firms. Moreover, if government increases borrowing (especially from the banks) in order to finance its expenditure, it will compete (crowds – out) away the private sector, thus reducing private investment.

GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA: A DISAGGREGATED ANALYSIS (ECONOMICS PROJECT TOPICS AND MATERIALS)