CHAPTER ONE

GENERAL INTRODUCTION

1.1   INTRODUCTION

The relationship between government expenditure and economic growth has contribution to generate series of controversy among scholars. Government perform two functions-protection (Security)  and provision of certain public goods. The protection function consists of the making of laws as well as the enforcement of property right. This help to minimize risks of criminality, protect life and property, and nation from external aggression. The provision of public goods encompass defence, road, education, health and administration. Some scholars argue that increase in government expenditure on socio-economic and physical infrastructure encourages economic growth (Barro, 1990). For example, government expenditure on health and education raise the productivity of labour and increase the growth of National output.  Similarly, expenditure on infrastructures such as road, communication, and power reduce production cost. In Nigeria, government expenditure has continued to be on the increase due to the huge receipt from the public utilities like good road.

There is increasing need to provide both internal and external security for the people and the nation. The available statistics show that government total capital and recurrent expenditures have been no the increase in the last three decades. For instance, government total recurrent expenditure increased from N 3.8192 billion in 1977 to N 4.8052 billion in 1980, and then N 36.2196 billion in 1990. This expenditure rose to N 461.6 billion and N 1.58927 trillion in 2000 and 2007, respectively. In the same manner, the various component of government recurrent expenditure- salaries, wages, supplement and communication recorded an increase over the period under review. Similarly, government capital expenditure rose from N 5.0046 billion in 1977 to N 24.0486 billion in 1980 and 1990 respectively. This expenditure stood at N 239.4509.4509 billion and N 759.323 billion in 2007, respectively. Erkin [1991]. Observed that, the increased government expenditure has not translated to meaningful growth and development as Nigeria ranks among the poorest countries in the world. According to him, matoeconomic indicators like balance of payments, input obligations, inflation rate, exchange rate and national savings have revealed that Nigeria has not fared well in the last couple of years. He further observed that, real government capital expenditure has a significant positive influence on real output.

1.2   STATEMENT OF PROBLEM

Huge government expenditure, over time, has been viewed as not being commensurable with meaningful growth and development as Nigeria still ranks among the world’s poorest countries. Hence, there is great need to investigate the effect of government capital expenditures on some key services such as Administration, Economic services, and transfers services with a view to determining which of them contributes most significantly to the total capital expenditures of government.

1.3   OBJECTIVES OF THE STUDY

The objectives of this study are as follows:

1. To critically examine the relationship between the federal government total capital expenditure and her expenditure on some key services- administration, economic services and transfer services.
2. To determine which of these services contribute most significantly to the total capital expenditure.

1.4   SIGNIFICANCE OF THE STUDY

This study would be of great significance to the Federal government as it will provide the basis for predicting government total expenditure from her expenditures on administration, economic services, and transfer services. Moreover, it would be an invaluable research material to students, particularly, those in the social sciences and Management.

Again, the findings of this study would also be beneficial to other researchers who may be interested in the same or similar area of study.

1.5   STATEMENT OF HYPOTHESIS

We let Ho represent the null hypothesis and H1 the alternative hypothesis. The hypothesis of interest for this study are as follows:

(i)  Ho:   There is no significance relationship between government total capital expenditure hypothesis and its expenditure on some key services, administration, economic services and transfer services. against

H1:   There is a significance relationship between government total capital expenditure and its expenditure on some key services, administration, economic services and transfer services.

(ii)  Ho:  Economic services and transfer services do not have significant contribution to the government total capital expenditure when administration is already in the model.

against

H1:   Economic services and transfer services have a significant contribution to the government total capital expenditure when administration is already in the model.

(iii) Ho:  Administration and transfer services do not have significant contribution to the government total capital expenditure when economic services is already in the model.

against

H1:   Administration and transfer services contribute significantly to the government total capital expenditure when economic service is already in the model.

(iv)  Ho: Administration and economic service do not have significant contribution to the government total capital expenditure when transfer service is already in the model.

against

H1: Administration and economic service contribution significantly to the government total capital expenditure when transfer service is already in the model.

(v) Ho:   The X’s are orthogonal (multicollinearity is not present)

against

H1:   The X’s are not orthogonal (multicollneraity is present)

1.6   THE SCOPE AND LIMITATION

This study covers the federal government capital expenditure and her expenditures on Administration, economic service and transfer services for the period (1999 – 2009). Time and finances constituted the major limitations of the study.

1.7   DATA COLLECTION 

The data used for this study is a secondary data, which was obtained from the central Bank of Nigeria statistical bulletin (2009 edition) from which the Federal Government capital expenditures on Administration, economic services and transfer services as well as the total capital expenditures between 1999 and 2009, a period of 11 years, were extracted for use in the study.

1.8   DEFINITION OF TERMS

Capital

In general, capital refers to an investment on good or services that provide benefit over a period of time after their acquisition.

Expenditure

Government expenditure is simply, an outflow of resources from government purse to various sectors of the economy.

Capital Expenditure

An expenditure make on an asset with a useful life of more than one

Year, which increase the value, the useful life of the asset.