Government Expenditure and Economic Growth in Nigeria: An Analysis with Dynamic Ordinary Least Squares

Gilbert Deinde Ifarajimi and Kehinde Oluwole Ola

International Journal of Academic Research in Business and Social Sciences, 2017, vol. 7, issue 5, 8-26

Abstract: This study investigates the impact of government expenditure on economic growth from 1981 to 2015 using Dynamic Ordinary Least Squares that incorporates endogenity in its estimation. The unit root test using Augmented Dickey Fuller revealed that all the series were stationary at first difference. The two-step Engle-Granger residual test showed that the residual was stationary at level; thus, there was a long run relationship among the series. The findings obtained from the long run Dynamic OLS showed that government expenditure on administration, government expenditure on economic services and nominal exchange rate were significant and had the expected signs except government expenditure on economic services. The empirical findings further indicated that the ECM was negative and statistically significant at 5%. The speed of adjustment was 71.38%. Lastly, in the short-run analysis, findings revealed that the nominal exchange rate was significant and had the expected sign. This might have been due to the influence of naira depreciation on government expenditure. The study therefore recommends that there is need for restructuring of government expenditure to be in line with macroeconomic objectives and also to reduce expenditure on transfers through economic diversification. Government should also take decisive steps to diversify the economy in order to reduce dependence on oil and to stabilize the value of naira.

Keywords: Dynamic OLS; economic growth; government expenditure; nominal exchange rate (search for similar items in EconPapers)
Date: 2017
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