Public Expenditure And Economic Growth In Nigeria

Usman A, Mobolaji H. I, Abdulhakeem Kilishi, Mohammed Yaru and Yakubu T. A

Asian Economic and Financial Review, 2011, vol. 1, issue 3, 104-113

Abstract: The debate on the use of fiscal policy for economic stabilization andinducement of economic growth is an old one. Key issue in this debate relatesto the efficacy of public expenditure on stimulating economic growth. Theneo-classical school held on extreme position by refuting the usage of fiscalpolicy to regulate the economy even in the time of economic crisis. At theother extreme are those who emphasize the efficiency of fiscal policy instabilizing economic fluctuations and stimulating growth. There is nearly aconsensus on the short-run effects of fiscal policy on the economy. Fiscalpolicy can temporarily raise or lower national income or counteractmacroeconomic disturbances that would otherwise influence national output.This paper contributes to this debate by investigating the effect of federalgovernment expenditure on economic growth in Nigeria.An augmented Solow model is specified in Cobb-Douglas form with publiccapital as one of the factors. Public expenditure is used as proxy for publiccapital which is further decomposed by sectors. This helps us to investigatethe impact of each sector on economic growth. The decomposition is in threeexpenditure streams: (i) expenditure on building human capital- publicexpenditure on education and health; (ii) expenditure on buildinginfrastructure- public expenditure on transport and communication, and othersocial services; and (iii) expenditure on administration which is necessary forthe functioning of government;A multivariate time series framework is used. Augmented Dickey- Fuller testindicated that two of the variables are stationary at first difference while othervariables are stationary at levels. While Phillips Peron tests show that threeare stationary at levels and others at first difference. Results of the regressionsshow that in the short run public spending has no impact on growth.However, Cointegration and VEC results show that there is long runrelationship between public expenditure and growth.

Date: 2011
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