THE IMPACT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA (1980-2016)

Abstract

The growth of the Nigerian economy is dependent on government capital and concurrent expenditure, and to ascertain whether there is a relationship between gross domestic product (GDP) and government expenditure in Nigeria. The chi-square statistics and simple percentage were used to indicates that although there is a positive relationship between the dependent and independent variables, the adjustment of economic growth or gross domestic product was a fair one which made it visible to reject the null hypothesis. The policy implication of the above scenario is that government over the years appears to be bad managers of resources and have failed to play their role in the process of economic growth and development.

CHAPTER ONE

INTRODUCTION

1.1      Background of the study

Public expenditure theories evolved out of the perceived failure of market economic to efficiently and equitably allocate economic resources for social and economic infrastructure development. This failure necessitated the emergence of welfare economics (state intervention in economic activities) leading consequently to the rapid expansion of the government sector, and by implication, growth in public expenditure. As the public sector size continued to grow relatively, the need for an appropriate mechanism that would ensure efficiency in resource allocation arose. In order to fill this perceived gap, the budget, which contained a package of public expenditure plan and tax legislation of the government for the year readily come to be a veritable tool for controlling, monitoring and relating government expenditure plans to polices of finance and taxation. Government expenditures were usually broadly categorized into recurrent and capital expenditures. The former, according to Lacey (1989), corresponded to government’s purchase of current goods and services (labour, consumables, wages and salaries, etc.), while the latter would ideally include not merely investments in infrastructure (roads, schools, hospitals, etc) but also all other expenditures that might contribute to development. In other words, while the recurrent expenditure refers to financial outlays necessary for the day-to-day running of government businesses, the capital expenditure refers to investment outlets that increase the assets of the state. These categorization, however, were not mutually exclusive but were indeed inter-linked. For instance, while capital expenditure gave rise to recurrent expenditure in most cases through the operational and maintenance costs of completed capital projects, the amount available for investment was a function of not only the size of revenue but also the amount that goes annually into the running of government. From the foregoing, this study aims at the following specific objectives. To examine the impact of public expenditure on economic growth in Nigeria and to ascertain whether there is a relationship between gross domestic product (GDP) and government expenditure in Nigeria. The scope of the study will be limited to the impact of public expenditure on the Nigerian economy spanning a period of 38 years from 1980 to 2016. This study will rely mainly on secondary data from various sources including the Central Bank of Nigeria (CBN) Annual Reports and Statement of Accounts, and Statistical Bulletins of various issues. public expenditure is an important instrument for government to control the economy. It plays an important role in the functioning of an economy whether developed or underdeveloped. Public expenditure was born out of revenue allocation which refers to the redistribution of fiscal capacity between the various levels of government or the disposition of responsibilities between tiers of the government. Broadly speaking, public expenditure affects aggregate resources use together with monetary and exchange rate. Specifically public expenditure refers to the value of goods and services provided through the public sector. In the Nigerian economy public expenditure can broadly be categorized into capital and recurrent expenditure. The recurrent expenditure are government expenses on administration such as wages, salaries interest on loans, maintenance etc., whereas expenses on capital projects like roads, airports, health, education., telecommunication, electricity generation etc., are referred to as capital expenditure (Obinna, 2003). The size of government expenditures and its effect on economic growth, and vice versa, has been an issue of sustained interest for over decades now. The relationship between government expenditure and economic growth has continued to generate series of debate among scholars. Government performs two major functions- protection (and security) and provisions of certain public good (Al-Yousif, 2000). Scholars argue that increase in government expenditure on socio-economic and physical infrastructures encourage economic growth. For example, government expenditure on health and education raises the productivity of labour and increase the growth of national output. Similarly, expenditure on infrastructure such as roads, communications, power, etc, reduces production costs, increases private sector investment and profitability of firms, thus fostering economic growth. As observed by Al-Yusuf and Couray (2009), Abdullah (2000), Ranjan, Sharma, (2008) and Cooray (2009) the expansion of government expenditure contributes positively to economic growth. In Olukoye (2009) the general view is that public expenditure either recurrent or capital expenditure, notably on social and economic infrastructure can be growth-enhancing. The provision of infrastructure services to meet the demands of business, households, and other users is one of the major challenges of economic development in developing countries like Nigeria. Developing countries invest about $200billion a year in new infrastructure representing four percent of their national output and a fifth of their total investment. The result has been a dramatic increase in infrastructure services-for transport, power, water, sanitation, telecommunications, and irrigation (World Bank’s Development Report 1994). Government spending in Nigeria has continued to rise due to the huge receipts from production and sales of crude oil, and the increased demand for public (utilities) goods like roads, communication, power, education and health. There is increasing need to provide both internal and external security for the people and the nation. Available statistics show that total government expenditure (capital and recurrent) and its components have continued to rise in the last three decades. For instance, government total recurrent expenditure increased from N4, 805.20 million in 1980 to N36,219.60 million in 1990 and further to N1, 589,270.00 2007. On the other hand government capital expenditure rose from N10, 163.40 million in 1980 to N24, 048.60 million in 1990. Capital expenditure stood at N239, 450.90 million and N759, 323.00 million in 2000 and 2007 respectively. The various components of capital expenditure have risen between 1980 and 2016 However, the rising government expenditure may have not translated to meaningful growth and development, as Nigeria ranks among the poorest countries in the world. In addition, many Nigerians have continued to wallow in abject poverty, while more than fifty percent live on less than US$1per day. Moreover, macroeconomic indicators like balance of payments, import obligations, inflation rate, exchange rate, and national savings reveal that Nigeria has not fared well in the last three decades. It is disturbing to note that government expenditure seems to have not replicated same level of economic growth in Nigeria, for instance between 1980 and 1990, while the GDP growth rate was decreasing (57.15% down to 2.87%), government expenditure growth rate was increasing (23.2% to 41.24%). Thus, there is an inverse relationship between the two periods. However, it is found that the growth rate of government expenditure in 2000 and 2010 was 15.53% and 2.15% respectively, while GDP growth rate witnessed 8.79% and 1.54% in the same period respectively. Thus, government expenditure growth rate has been greater than GDP growth in the same period. Due to the mixed feeling on the above the debate has been inconclusive on whether or not increasing government spending induces economic growth or not. Based on the above this paper attempts to investigate whether increasing government spending induces economic growth performance in Nigeria.

1.2      STATEMENT OF THE PROBLEM

As stated earlier, the intent of government for the economy is generally positive, hence government expenditure is targeted towards achieving this goals. Over the years in Nigeria, the federal government have been spending on the economy as we see increase on receipts from production and sales of crude oil, and the increased demand for public goods, like roads communication power, education, health etc but in most cases the intent of these spending are not realized due to some reasons like, corruption, misplacement of priority low level of implementation and policy dis-continuity, it is also been argued in some quarter that government expenditure, possess danger to the Nigeria economy instead of improving it.

1.3      OBJECTIVE OF THE STUDY

The main objective of the study is to ascertain the impact of government expenditure on economic growth in Nigeria. But to aid the successful completion of the study, the researcher intends tp achieve the following specific objectives;

i)             To ascertain the impact of government expenditure on economic growth

ii)           To examine the relationship between government expenditure and economic growth in Nigeria

iii)          To examine the effect of government expenditure on the gross domestic product of the country

iv)         To ascertain the role of government in expenditure on the growth of Nigeria’s economy

1.4      RESEARCH HYPOTHESES

 The following hypotheses were formulated by the researcher to aid the completion of the study

H0: government expenditure does not have any significant impact on the economic growth of Nigeria

H1: government expenditure does have a significant impact on the economic growth of Nigeria

H02: there is no significant relationship between government expenditure and economic growth in Nigeria

H2: there is a significant relationship between government expenditure and economic growth in Nigeria

1.5      SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of great value to the federal government as the study seek to enumerate the impact of government expenditure on economic growth, it is believed that the study will also be of importance to the three tiers of government as the findings will helped explore the role of government expenditure on economic growth in Nigeria. The study will also be useful to researchers who intends to embark on a study in a similar topic as the study will serve as a reference point for further study, finally the study will be useful to academia’s, researchers, lecturers, students, and the general public as the study will add to the pool of existing literature.

1.6      SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the impact of government expenditure on economic growth in Nigeria. In the cause of the study, there were some factors which limited the scope of the study;

(a)Availability of research material: The research material available to the researcher is insufficient, thereby limiting the study.      

(b)Time: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.      

(c)Finance: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover

1.7 DEFINITION OF TERMS

Expenditure

 Payment of cash or cash-equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher, or other such document.

Economic growth

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time.

Government

A government is the system or group of people governing an organized community, often a state.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion and also recommendations made of the study.