Impact of Public Expenditure on Economic Growth

This study examines the impact of government expenditure on economic growth in Nigeria, using annual time series data for a period of 43 years (1980-2023) with Autoregressive Distributive Lag (ARDL). The study also tested the unit root properties of the variables using Augmented Dickey Fuller (ADF) and the results indicate that most of the variables were stationary at first difference except only one variable that stationary at level. The results of the cointegration tests reveals that the F-statistic values of the tests are greater than both I(0) and I(1) critical value bounds at 5% level of significance in all the tests which is a condition for rejecting the null hypothesis of no long run relation among the variables. The study adopts the Keynessian’s theory as its benchmark. The study also, carries out a review of those theories that had formed the basis of previous empirical studies such Wagner’s Law; Keynessian’s theory and the Musgrave Theory of Public Expenditure Growth. Among explanatory variables employed in explaining the equations include total government expenditure, government recurrent expenditure, government capital expenditure and total public debt. The study found that, the coefficient of total expenditure is 0.5363 with p-value of 0.0083, indicating that the coefficient is positive and statistically significant at 5 % level. Also, the coefficient of recurrent expenditure is 0.8543 with p-value of 0.0010, indicating that the coefficient is positive and statistically significant at 5 % level while the coefficients of capital expenditure is -4.361, with p-value of 0.018,  indicating that the coefficient is negative and statistically significant at 5 % level. Lastly, the coefficient of public debt is 0.018, found to be statistically insignificant at 5% level evidence with the high P-value of 0.61. The study recommends among others that there should be efficient allocation of recurrent spending and productive capital investments to foster sustainable economic growth. Also, total government expenditure is essential for providing public goods and services, in order to avoid fiscal imbalances by curtail excessive spending. To maintain fiscal discipline to achieve long-term prosperity and economic stability, the responsible debt management should be put in place.

Keywords: Government Expenditure, Total Expenditure, Recurrent Expenditure, Capital Expenditure, Economic Growth.

Jel Classification Code: H00, H50