Essays /

Impact Of Government Expenditure On Economic Essay

Essay preview




According to Wikipedia encyclopedia, Economic growth refers to the increase in the amount of goods produced by a country; this is a measure of the economic performance of the country while government expenditure is refered to as an outflow resources from government to other sectors of the economy, government expenditure (or government spending) includes all government consumption, investment but excludes transfer payments made by the state. Government expenditure is subdivided into recurrent and capital expenditures. Capital expenditure can be defined as payment for non-financial assets used in production for more than one year, e.g. expenses incurred on capital projects such as electricity generation, telecommunication, roads e.t.c. while recurrent expenditures are payments for non-repayable transactions within a year e.g. salaries, wages, interest on loans, maintenance e.t.c (CBN, 2003). There has been a recent revival of interest in growth theory which has also sparked interest among researchers in verifying and understanding the linkages between government spending and economic growth especially in developing countries like Nigeria. One of the major functions of government spending is to provide infrastructural facilities, so also does the maintenance of these facilities require a substantial amount of spending. 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). Some scholars argue that an increase in public expenditure either recurrent or capital expenditure, notably on social and economic infrastructure can be growth enhancing though the sources of financing such expenditures to provide essential infrastructural facilities including transport, electricity, potable water, sanitation, waste disposal, education and health can be growth retarding (for example, the negative effect associated with borrowing, taxation and excessive debt). 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. But if the source of financing such public expenditures is through borrowing it could lead to crowding out private investment which would in turn retard the growth process in the short run and diminish capital accumulation in the Long run (Diamond, 1989) The effect of government spending on economic growth still remains largely an unresolved issue theoretically as well as empirically. Although the theoretical positions on the subject are quite diverse, the conventional wisdom is that a large government spending is a source of economic instability or stagnation. Empirical research, however, does not conclusively support the conventional wisdom. A few studies report positive and significant relation between government spending and economic growth while several others find significantly negative or no relation between an increase in government spending and growth in real output.

1.2 Statement of problem
In the last decade, the Nigerian economy has metamorphosed from the level of million naira to billion naira and now arrived to trillion naira on the expenditure side of the budget. Therefore it will not be alarming if the economy is experiencing surplus or equilibrium on the records of balance of payment. Better still, if there are infrastructures to improve the quality of life, attract massive foreign direct investment or social amenities to raise the welfare and living standards of an average citizen of the economy but that has not been the case. It is the general view that increased public expenditure will in addition to addressing the nation’s foremost needs, stimulate the economy thereby generating a large number of socially useful jobs and business opportunities and consequently fostering sustainable economic growth and development. All these are not there, yet we always have a very high estimated expenditure. This indicates that something is definitely wrong either with the way government implements the budget or with the ways and manners it has always been computed. 1.3 Research Questions

Hence, in order to justify reasons for so much expansionary effects on the way and manner public expenditure either capital or recurrent expenditure have been geometrically been increasing over the years so as to finance the infrastructural facilities with a view to raise the welfare of average citizen of the economy and improve the living standard by increasing national output, this study aims to provide solutions to the following questions: 1. Is there any causal relationship between government expenditure either capital or recurrent expenditure and economic growth in Nigeria? 2. What impact does public spending on Infrastructural facilities have on economic growth in Nigeria? 3. Is it true that has the nation is expanding its public expenditure on provision of infrastructural facilities, the economy has been growth-enhancing?

The importance of the role of government expenditure on essential infrastructural facilities to achieving sustainable economic growth has been stressed earlier in the introduction to this work. Therefore efforts aimed at improving and maintaining the state of infrastructural facilities in Nigeria would be worthwhile. The main objective of this research is to evaluate the impact of government spending either capital or recurrent expenditure on economic growth. The research specifically intends to find answers to the research objectives raised which includes the following; 1. Examine if government spending on either capital or recurrent have any significant impact on economic growth in Nigeria. 2. Examine whether increase in government spending causes growth or growth causes government spending to increase. 3. Examine the state of infrastructural facilities in Nigeria.

The study at its completion would be relevant in the following ways; First, it shall provide a basic understanding of the causal relationship between government spending and growth in Nigeria. Secondly, the outcome of the study will aid government in channeling its limited financial resources towards sectors in the economy that are growth enhancing.

H0: Government spending (capital and recurrent expenditure) does not have any significant impact on Gross domestic product H1: Government spending (capital and recurrent) has significant impact on Gross domestic product 1.7 SCOPE AND LIMITATION OF THE STUDY

The study shall cover a period of 21 years, from 1990-2010. Total capital and recurrent expenditures would be used as proxy variables to measure the impact of government expenditure while Gross Domestic Product (GDP) will be used as the proxy variable to measure economic growth. 1.8 DEFINITION OF TERMS

Government expenditure: Government Expenditure refers to the expenses incurred by the State for the maintenance of the economy as a whole. Economic growth is defined as a sustained increase in a country’s real GNP and per capita real GNP.

• CBN (2003), Highway Maintenance in Nigeria: Lessons from other countries. (Research Department Occasional Paper No. 27) • Diamond, J. (1989).Government Expenditure and growth. Finance and Development 27(3): December. • Niloy, B., Emranul. M.H and Denise. R.O (2003): Public Expenditure and Economic Growth: A Disaggregat...

Read more


-1 -152 -191 -1917 -1955 -1978 -1992 -2001 -2005 -2007 -2008 -2010 -227 -30 -344 -390 -69 -844 /stabilization 0 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 10 11 1187 1193 12 125 15th 16 16th 173 1831 1835 1883 1890 1903 1936 1950 1958 1960 1961 1965 1970 1970s 1980s 1989 1990 1993 1994 1995 1996 1997 1998 1999 2 2.0 2.1 2.2 2.3 2.3.1 2.3.2 2.4 2.5 2000 2001 2002 2003 2005 2006 2007 2008 2010 2011 205 208 20th 21 21years 26 27 3 3.0 3.1 3.1.1 3.1.2 3.1.3 3.1.4 3.1.5 3.2 3.3 3.4 3.6.3 3.6.4 3.7 3.8 3.9 30 313 37 380 4 4.0 4.1 429 446 48 5 5th 6 60 8 837 8th 999 a.a a.f a.t aba abdulah abdullah absolut acceler accept accord accumul achiev activ addit address adduc adequ adjust administr adolph adopt advis advoc affect afolabi agenc aggreg agre agricultur ai ai-fari aid aigbokan aigbokhan aim akpan al al-fari al-yousif al.2003 alarm also altern although alway amen american among amount analysi analyz and/or annual answer anticorrupt anyanwu appli applic approach arabia argu aris arriv ascertain aschauer assert asset associ assum assumpt astra attempt attract augment author autoregress avail avenu averag avoid away aworind b b/2 b1 b1-intercept b2 b2tcap b3 b3trec b4 b4-slope b4ifr bachelor background balanc bank barro base basic becom bej believ benefit best better between1970 bid billion boost borrow brahmasren bratimasren briefli brown brue budget bulletin busi c c.b.n cal cambridg cannot capabl capac capit capita case caus causal causat cbn central centuri chang channel chapter characterist cheap choic citizen claim classic classifi clear co co-integr coeffici collect come commerci communic communiti compani compar compet competit complement complet compon composit comput conceptu conclud conclus conduct confer confirm connect consensus consequ consid constitut constraint construct consumpt contend continu contrari contribut control convent converg cooper correct correl correspond corrupt cost could council countri coupl cover creat criteria critic cross cross-sect crowd crowds-out current cut d damodar data davarajan david deal debt decad decemb decis declin decreas defens deficit defin definit delhi demand denis denot depart depend depreci depress dept design detail determin devarajan develop diamond differ dimens diminish direct disaggreg discourag discov discuss disincent displac dispos distortionari disturb divers divid doctrin domest domin downturn downward dr draw dsa due durabl dynam e e-view e.g e.t.c each-oth earlier econ econom econometr economi economist econoni ed edgar edit edu educ edward effect effici effort either ekpo electr emphas empir employ emranul encourag encyclopedia endogen enhanc ensur entail equal equilibrium error especi essenti establish estim et etc evalu even everi everyon evid examin exampl excess exchang exclud exert exhibit exist exogen expand expans expansionari expect expenditur expenditure-econom expens experi experienc explain explanatori explicit express extens extern extract f f-statist facil fact factor failur fair fajingbesi fall far fari fashion faster feder feedback final financ financi find firm first fiscal five five-thi follow forc forego foreign foremost format forth forward foster found four four-thi framework full full-employ full-equilibrium function fund furthermor g g.k g.n g.o gdp gdp-gross general generat genuin geometr german germani ghali ghosh give gnp goldfield good govern government granger greec gregorio gross group grow grown growth growth-enhanc guarante gujarati gulf h h0 h1 ha hamdala hand haven hea health henc heterogen high higher highest highway hill histor hm hospit hotel hour howev human hypothes hypothesi i.0 i.e ibadan icfai idea identifi ifr ifr-infl illustr impact imped imperfect implement impli implicit import impos improv inadequaci inc includ incom incomplet increas incur indefinit independ india indian indic indirect individu industri ineffici infer inflat inflationari influenc influenti inform infrastructur inher inhibit insignific inspect instabl instanc instead instrument insuffici integr intend intens intent interact intercept interest intern interpret intervent introduct invest investig investment-l involv ireland irrespect irwin issu item j j.e j.m j.p jackson japan jd jel jeppelli jerk joane job john joint journal judg judgment june justif justifi k.h kaduna kd keyn keynesian kind kingdom known komain koman kweka labor labour lack laissez laissez-fair larg last law layer lead least led lesson level life like limit link linkag literatur littl live loan local loizid london long long-run long-term ltd lulea m.h macmillan macmillian made main maintain mainten major make manag mani manner market martin massiv mathemat may maynard mcconnel mcgraw mcgraw-hil mda mean meana measur mechan meet meridian metamorphos method methodolog might million minim ministri misalloc mitchel mittnik model monet monetari money moreov morrissey movement much multipl multipli musgrav n.i naira name nation natur nber ncema need negat netherland neumann new newspap nigeria nigerian niloy nitti non non-exclud non-financi non-repay non-rivalri nordhaus notabl note number nurudeen o object observ obtain occasion occur odusola oecd offic offici ogiogio ogundip okezi older olugbenga omit one onitsha onoh oper opin opportun order organ origin osborn other outcom outflow output overal owoy oyinlola oyo p packag panel paper particular past paul payment peac peacock peopl per perform period persist peter philosophi physic piori place plan point polici policies-domest politician popular posit postul potabl potenti power precis prescript present presenta preserv press pressur price primarili princeton privat problem proceed process produc product profit programm project promot proport propos proposit provid provis provok proxi pubic public publish put qualiti question quit r r.a r.o rais rajan ranjan rapid rate ratio re re-occur re-stat real reason recent recogn recommend record recurr reduc reduct refer reflect regard regress regul reject relat relationship releas relev reliabl remain repay report reprint requir research resent resourc respons restrain restraint result retard retriev return reveal revenu review reviv rise rivalri road role root run sala sala-i-martin salari samuelson sanit saudi say scandinavian scholar school scienc scope score se search second secondari section sector secur seek seem seri serv servic set sever shall share sharma shioji short show shown side signific similar simpl simultan sinc six size slope slow slowdown smooth social solut solv someth sometim sourc spark specif specifi spend spillov spur stabil stagnat standard state statement stationari statist steadi step still stimul stress strong struck structur studi sturm subdivid subject submit substanti suggest summari superior supervis suppli support surplus sustain swaroop sweden system tab tackl take tanzania tata tax taxat tcap tcap-tot techniqu technolog telecommun tend tendenc term test thailand theoret theori therebi therefor thesi think though three thus time tool topic total toward traco trade trade-off train transact transfer translat transport trec trec-tot tri trillion trivari true tunisia turn two ui ui-error uk uncertainti under understand undertak underutil unemploy unidirect unit univers unproduct unprofit unresolv us use usman v valu vamvouka vari variabl various vector vein verifi version view vol volum w wage wagner warlik wast water way weak welfar well well-known wherebi whether whole wide wikipedia william wisdom wiseman wiseman-peacock within word work worth worthwhil would write wrong x y year yet york yousif zonal zou