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Does government spending spur economic growth in Nigeria?

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  • Maku, Olukayode E.

Abstract

This study examines the link between government spending and economic growth in Nigeria over the last three decades (1977-2006) using time series data to analyze the Ram (1986) model. Three variants of Ram (1986) model were developed-regressing Real GDP on Private investment, Human capital investment, Government investment and Consumption spending at absolute levels, regressing it as a share of real output and regressing the growth rate real output to the explanatory variable as share of real GDP. Result showed that private and public investments have insignificant effect on economic growth during the review period the review period. An attempt to test for presence of stationary using Augmented Dickey Fuller (ADF) unit root test reveals that all variables incorporated in the model were non-stationary at their levels. In an attempt to establish long-run relationship between public expenditure and economic growth, the result reveals that the variables are cointegrated at 5% and 10% critical level. With the use of error correction model to detect short run behaviour of the variables, the result shows that for any distortion in the short-run, the error term restore the relationship back to its original equilibrium by a unit. A number of suggestions were however made on how government spending should be channel in order to influence economic growth significantly and positively in Nigeria.

Suggested Citation

  • Maku, Olukayode E., 2009. "Does government spending spur economic growth in Nigeria?," MPRA Paper 17941, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17941
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    File URL: https://mpra.ub.uni-muenchen.de/17941/1/MPRA_paper_17941.pdf
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    References listed on IDEAS

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    1. International Monetary Fund, 2008. "Impact of Government Expenditure on Growth: The Case of Azerbaijan," IMF Working Papers 2008/115, International Monetary Fund.
    2. Ram, Rati, 1986. "Government Size and Economic Growth: A New Framework and Some Evidencefrom Cross-Section and Time-Series Data," American Economic Review, American Economic Association, vol. 76(1), pages 191-203, March.
    3. Romer, Paul M., 1990. "Human capital and growth: Theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 251-286, January.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. I. Omosebi Ayeomoni & Saheed A. Aladejana, 2016. "Agricultural Credit and Economic Growth Nexus. Evidence from Nigeria," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(2), pages 146-158, April.
    2. Courage Mlambo, 2022. "China in Africa: An Examination of the Impact of China’s Loans on Growth in Selected African States," Economies, MDPI, vol. 10(7), pages 1-27, June.
    3. Kanayo Kingsley Ogujiuba & Kizito Ehigiamusoe, 2014. "Capital Budget Implementation in Nigeria: Evidence from the 2012 Capital Budget," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 8(3), September.
    4. ZAREEN, SHUMAILA & Qayyum, Abdul, 2014. "An Analysis of the Impact of Government Size on Economic Growth of Pakistan: An Endogenous Growth," MPRA Paper 85426, University Library of Munich, Germany, revised 2015.
    5. Nwosa Philip I. & Ehinomen Chris & Ugwu Ephraim, 2020. "Output Volatility and Government Size in Nigeria," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 286-301, June.
    6. Ayoka Cynthia Odinakachi & Nzotta Samuel Mbadike & Kanu Success Ikechi, 2021. "The Effect of Federal Government Revenue and Expenditure On Economic Growth in Nigeria – An Empirical Review," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 7(3), pages 34-52, August.
    7. Binata Rani Sen & Shamim Alam & Md. Maznur Rahman & Mohammad Iqbal Hossain, 2019. "Investigating Impact of Expansionary Fiscal Policy on Output in Bangladesh Economy: An Econometric Study," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(8), pages 936-945, August.
    8. Sebastian O. Uremadu* & Nwaeze Chinweoke, 2019. "Responsiveness of Economic Growth to Public Expenditure in Nigeria (1980 -2016): An Empirical Analysis," Sumerianz Journal of Business Management and Marketing, Sumerianz Publication, vol. 2(2), pages 19-31, 02-2019.
    9. Olusegun Felix Ayadi & Ladelle M. Hyman & Johnnie Williams & Bettye Desselle, 2018. "How Effective Is Resource Stabilization Fund in a Mono-product Economy?," Global Business Review, International Management Institute, vol. 19(4), pages 842-858, August.

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    More about this item

    Keywords

    Government spending; public infrastructure; economic growth; human capital investment; Government investment.;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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