Impact of Government Expenditure on Economic Growth in Nigeria: A Disaggregated Analysis

The purpose of this paper was to assess the impact of government capital expenditures on economic growth in Nigeria during 1970 and 2012. A multiple regression model based on a modified endogenous growth framework was utilized to capture the interrelationships among capital expenditures on agriculture, education, health economic infrastructure and economic growth. Drawing on error correction and cointegration specifications, an OLS technique was used to analyze annual time series. Both short and long run effects of government capital expenditures on economic growth were estimated. Government capital expenditures had differential effects on economic growth. Capital expenditures on Agriculture did not exert any significant influence on growth both in the long and short runs. Similarly, the corresponding short-run and long-run impacts on growth of capital expenditures on Education were 0.45 and 0.48, respectively. These results were positive and statistically significant at the 5% level. The short-run impact of health capital expenditures on economic growth was 0.21, while the long-run impact was 0.16. These impacts were negative and insignificant. Expenditures on economic infrastructure had significant positive impacts on growth of 0.28 in the short-run and 0.32 in the long-run. Moreover, these expenditures do not crowd-out private investment. These results indicate that government expenditure on human capital development through the social services sector tended to promote economic growth unlike that on Agriculture. Given that Agriculture still remains a mass major provider of livelihood opportunities, it is still an important channel of economic growth. There is need, therefore, to strengthen the quality and sustainability of, especially, capital expenditures on Nigeria’s Agricultural sector.