Assessing Government Expenditure’s Impact on Nigeria’s Manufacturing Sector: “A VAR Approachâ€

The study uses secondary data from the Central Bank of Nigeria Statistical Bulletin (2020) that spans 41 years, from 1981 to 2020, to examine the effect of government spending on the manufacture of Nigeria’s manufacturing sector. Employing secondary methodology, the study begins by determining the order of integration of individual time series through unit root tests and conducting stationary tests on all variables. Subsequently, cointegration tests are performed, followed by the implementation of a Vector Autoregressive (VAR) model. The results show that, at lags one and two, capital spending and the manufacturing sector in Nigeria have a positive association, while at lag three, there is a negative correlation. Conversely, recurrent expenditure exhibits a negative relationship with the manufacturing sector at lag one and lag two, but a positive correlation at lag three. Additionally, the study identifies a positive correlation between interest rates and manufacturing sector output with (8.4% ECT (-1), indicating the speed of adjustment to long-run equilibrium. The report emphasizes how important targeted government spending on the manufacturing sector is for the growth of a country’s economy, especially in Nigeria. It recommends that concerted efforts be made to improve and encourage manufacturing sector output, emphasizing the role of government in providing support and incentives for investment in the sector.