Revisiting Government Expenditure and Private Investment Nexus: An ARDL Approach

Obakemi Funsho Idowu (), Inyang John Okiri () and Hassan Ismail Olarewaju ()
Additional contact information
Obakemi Funsho Idowu: Department of Economics University of Ilorin Nigeria
Inyang John Okiri: Department of Economics University of Calabar Nigeria
Hassan Ismail Olarewaju: Department of Economics University of Ilorin Nigeria

Jurnal Ekonomi Malaysia, 2020, vol. 54, issue 1, 181-192

Abstract: This paper re-examines the nexus between government expenditure and private investment in Nigeria over the period of 1981-2016. The study is rooted on Jorgenson’s theory of investment, the Samuelson’s version of the flexible accelerator theory and Keynesian-classical crowding-in/crowding-out theory of investment. The resulting empirical models comprise three equations; one each for private investment (PI), private domestic investment (PDI) and foreign direct investment (FDI). The study employed Autoregressive Distributed Lag technique to estimate the models. From the study, government expenditure showed positive impact on private investment in Nigeria. Our specific findings showed that: Federal government’s capital expenditure (CAEX) showed positive and significant impact on both PI and PDI in the long run: a ₦ 1.00 billion each increase in CAEX increases PI and PDI by ₦ 0.12 and ₦ 0.238 billion respectively. CAEX showed negative but insignificant impact on FDI in both short and long run. State government’s capital expenditure (SCEX) showed positive and significant impact on PI: A ₦ 1.00 billion increase in SCEX increases PI by ₦ 0.27 billion. Federal government’s recurrent expenditure (REEX) showed positive and negative impact on FDI and PI respectively: A ₦ 1.00 billion increase in REEX increases FDI by ₦ 1.27 billion, and reduces PI by ₦ 0.28 billion. Our findings imply that, if the objective of government policy is to raise private investment or private domestic investment, then both the Federal Government and state governments should boost their capital expenditure.

Keywords: ARDL model; Accelerator theory; Government expenditure; Investment; crowd-in/out hypotheses (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.ukm.my/jem/wp-content/uploads/2021/05/jeko_541-13.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ukm:jlekon:v:54:y:2020:i:1:p:181-192

DOI: 10.17576/JEM-2020-5401-13

Access Statistics for this article

More articles in Jurnal Ekonomi Malaysia from Faculty of Economics and Business, Universiti Kebangsaan Malaysia Contact information at EDIRC.
Bibliographic data for series maintained by Muhammad Asri Abd Ghani ().