Evaluating Government Consumption Expenditure Effect on Current Account in Nigeria

This study evaluates the effect of government consumption expenditures on the current account in Nigeria covering the periods from 1980 to 2019. The study answered the question, does government consumption expenditure affect the current account in Nigeria? Employing the Autoregressive Distributed Lag (ARDL) bound cointegration testing approach for evaluation, the unit root test results show a mixed order of stationarity. The ARDL bound test result shows that there exists a long-run relationship among the variables. The estimated coefficients of the long-run relationship are positive and statistically significant for the consumption expenditure, LOG (GCON), and the growth rate of GDP (GDPGR), at a 5% significant level. This shows that an increase in the government consumption expenditure results in a decrease in the current account balance of Nigeria. The coefficient of the budget deficit, DEFICIT shows a positive sign, indicating that government budget deficit leads to a current account deficit, thus supporting the twin deficit proposition. The study, therefore, recommends that the Federal Government of Nigeria should reduce the level of borrowing as this would reduce debt service payment.