Public Expenditure And Economic Growth In Nigeria
The debate on the use of fiscal policy for economic stabilization and inducement of economic growth is an old one. Key issue in this debate relates to the efficacy of public expenditure on stimulating economic growth. The neo-classical school held on extreme position by refuting the usage of fiscal policy to regulate the economy even in the time of economic crisis. At the other extreme are those who emphasize the efficiency of fiscal policy in stabilizing economic fluctuations and stimulating growth. There is nearly a consensus on the short-run effects of fiscal policy on the economy. Fiscal policy can temporarily raise or lower national income or counteract macroeconomic disturbances that would otherwise influence national output. This paper contributes to this debate by investigating the effect of federal government expenditure on economic growth in Nigeria. An augmented Solow model is specified in Cobb-Douglas form with public capital as one of the factors. Public expenditure is used as proxy for public capital which is further decomposed by sectors. This helps us to investigate the impact of each sector on economic growth. The decomposition is in three expenditure streams: (i) expenditure on building human capital- public expenditure on education and health; (ii) expenditure on building infrastructure- public expenditure on transport and communication, and other social services; and (iii) expenditure on administration which is necessary for the functioning of government; A multivariate time series framework is used. Augmented Dickey- Fuller test indicated that two of the variables are stationary at first difference while other variables are stationary at levels. While Phillips Peron tests show that three are stationary at levels and others at first difference. Results of the regressions show that in the short run public spending has no impact on growth. However, Cointegration and VEC results show that there is long run relationship between public expenditure and growth.
Volume (Year): 1 (2011)
Issue (Month): 3 (September)
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