THE IMPACT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH (1981 – 2016)

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Government Expenditure no doubt is an important instrument for a government to control the economy of a nation. Economists have been well aware of the effects in promoting economic growth. Anyway, the general view is that government expenditure notably on social and economic infrastructure can be growth enhancing although the financing of such expenditure to provide essential infrastructural facilities including transport, electricity, telecommunication, water and sanitation, waste disposal, education and health can be growth retarding (Olukayode, 2009). Nowadays, the relationship between government expenditure and economic growth has continues to generate sense or controversies among scholars in economic literature (Inuwa, 2012). According to him, the nature of the impact of government expenditure on economic growth is in conclusion, and from the view point of the student researcher is still not incontrovertible. As a matter of fact, while some author or researchers believed that the impact of government expenditure on economic growth is negative or non-significant (Tuban, 2010), others believed that the impact is positive and significant *Alexiou, 2009). The structure of Nigeria government expenditure can bawdily be categorized into capital and recurrent expenditure (Muritala 2011). The recurrent expenditure is basically government expenses on administration such as wages, salaries, interest on loans, maintenance cost, etc. However, the expenses on capital project like roads, airports, education, telecommunication, electricity, generator, etc are generally referred to as capital expenditure (Muritala, 2011). Ironically, the effect of government spending in Nigeria in relation to the economic growth is still a puzzle and an unresolved issue. Indeed theoretically, it is an unresolved issue. Although the theoretical positions on the subject are quite diverse, the conventional wisdom is that or spending is a source of economic instability or stagnation. Empirical research does not conclusive support the conventional wisdom, a few studies report position and significant negative relationship between government spending and economic growth while others find significantly negative or no relation between an increase in government spending and growth in real output. It is against this backdrop, the study is undertaken to empirically evaluate the impact of government expenditure on economic growth in Nigeria.