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Impact of Government Expenditure on Economic Growth in Nigeria

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Impact of Government Expenditure on Economic Growth in Nigeria.


This study examines the impact of government expenditure on economy growth in Nigeria. In the light of the empirical review and other discussions, a number of questions arose as to whether there is significant relationship between government recurrent expenditure and economic growth of Nigeria, if there is significant relationship between government capital expenditure and economic growth of Nigeria as well as to determine if there is significant relationship between government transfer expenditure and economic growth of Nigeria.

Using the Ordinary Least Square (OLS) regression technique with the aid of computer software, for a 1993 – 2012 time series data, the empirical findings revealed among other things, that government investment expenditure has a significant impact on Nigeria’s economic growth. The study is recommends that Transfer expenditure such as provident fund, pensions and other Social Security benefits such as NHIS scheme positively affect the economic growth of Nigeria.

And by using government expenditure to achieve supply-side improvements in the macro-economy, such as spending on education and training to improve labour productivity, the economic growth of Nigeria increases it also considers that Administration expenditure, Capital and recurrent expenditure also affect the economic growth of a country. On the strength of these evidences, this work recommends that the Federal Government should be very conscious about how it uses the fiscal policy to regulate government expenditure; government should be consistent with its expenditure/payments as this will stimulate economic growth.


Title Page i
Approval page ii
Certification iii
Dedication iv
Acknowledgement v
Abstract vi
Table of Contents vii

1.0 Introduction 1
1.1 Background to the Study 1
1.2 Statement of the Problem 4
1.3 Objectives of the Study 4
1.4 Research questions 5
1.5 Research Hypotheses 5
1.6 Significance of the Study 6
1.7 Scope and limitations 7
1.8 Organisation of the study 8
1.9 Definitions of terms 9
References 11

2.0 Introduction 12
2.1 Conceptual Framework 12
2.1.1 An Overview of Government Expenditure 14
2.1.2 Types of government expenditure 16
2.1.3 Government expenditure Policies in Nigeria 16
2.1.4 Purpose of government expenditure 18
2.1.5 Significant of government expenditure 18
2.1.6 Component of government expenditure 19
2.1.7 Determinants of Government Expenditure 21
2.1.8 Impact of government expenditure on other variables 24
2.1.9 Effect of government expenditure on long-term trends 25
2.1.10 Government consumption output 26
2.1.11 Classification of government expenditure 30
2.1.12 Need for government expenditure 32
2.1.13 Expenditure planning process 33
2.1.14 Anatomy of government expenditure plans 33
2.1.15 The role of government expenditure 35
2.1.16 Characteristics of a develop economy 35
2.1.17 Distinction between underdeveloped and developed economy 37
2.1.18 Factors affecting economic growth 39
2.1.19 Benefits of economic growth 48
2.1.20 Obstacles to economic development 50
2.1.21 Economic development and growth 50
2.1.22 Ingredients of economic development 52
2.1.23 The links between health and development 54
2.1.24 Effects of increase in government expenditure 55
2.1.25 Components of aggregate economy 57
2.2 Prior Empirical Review 60
2.3 Theoretical frameworks 67
2.3.1 Theory of government expenditure 67
2.3.2 Theory of increasing government expenditure 68
2.3.3 Peacock and Wiseman’s theory of expenditure 68
2.3.4 Ernest Engel’s Theory of government expenditure 69
2.3.5 Wagner law of increasing state activities 70
References 72

3.0 Introduction 74
3.1 Research Design 74
3.2 Restatement of hypothesis 75
3.3 Research population 75
3.4 Sample and sampling technique (s) 76
3.5 Research instrument (s) 76
3.6 Validity and reliability of instruments 77
3.6.1 Validity of the instrument 77
3.6.2 Reliability of the instrument 77
3.7 Method of data collection 77
3.8 Model specification 77
3.9 Data analysis techniques 79
References 80

4.0 Introduction 81
4.1 Presentation of data 81
4.2 Restatement of model specification 82
4.3 Analysis and interpretation 83
4.3.1 Hypothesis one 83
4.3.1a Interpretation of hypothesis one (economic growth and total recurrent expenditure) 85
4.3.1b Discussion of findings 86
4.3.2 Hypothesis two 87
4.3.2a Interpretation of hypothesis two (economic growth and total capital expenditure 89
4.3.2b Discussion of findings 90
4.3.3 Hypothesis three 91
4.3.3a Interpretation of hypothesis three (economic growth and total transfer expenditure) 93
4.3.3b discussion of findings 94

5.0 Introduction 95
5.1 Summary of Findings 95
5.2 Implication of findings 96
5.3 Recommendations 97
5.4 Conclusions 98
5.5 Contribution to knowledge 98
5.6 Suggestion for further studies 99
Appendix 103


Over the past decades, the public sector spending has been increasing in geometric term through government various activities and interactions with its Ministries, Departments and Agencies (MDA’s), (Niloy et al. 2003). Although, the general view is that government expenditure either recurrent or capital expenditure, notably on social and economic infrastructure can be growth enhancing although the financing of such expenditure to provide essential infrastructural facilities including transport, electricity, telecommunications, water and sanitation, waste disposal, education and health can be growth retarding (for example, the negative effect associated with taxation and excessive debt).

The size and structure of government expenditure will determine the pattern and form of growth in output of the economy (Taiwo, and Abayomi, 2011). The structure of Nigerian government 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, education, telecommunication, electricity generation etc., are referred to as capital expenditure.

One of the main purposes of government spending is to provide infrastructural facilities (Taiwo and Abayomi, 2011). Nurudeen and Usman (2010) added that, in Nigeria, government expenditure 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. Besides, there is 2 increasing need to provide both internal and external security for the people and the nation.

Available statistics, according to Nurudeen and Usman (2010) 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 N3, 819.20 million in 1977 to N4, 805.20 million in 1980 and further to N36, 219.60 million in 1990.


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CSN Team.

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