The Impact Of Government Expenditure On Economic Growth (1981 – 2016)

The Impact Of Government Expenditure On Economic Growth (1981 – 2016)

Abstract

This exploration work is on the impact of government expenditure on profitable development in Nigeria. The main ideal of this study is to empirically examine the impact of government expenditure on profitable development in Nigeria. This exploration work made use of secondary data which were attained from the Central bank of Nigeria Statistical Bulletin( 2016). The data were collected for a period of thirty six times( i.e. 1981- 2016). The Ordinary Least Forecourt Retrogression fashion was employed in the analysis of the data.

It was set up among other effects that Grounded on the empirical analysis, it’s concluded that government expenditure has positive relationship with profitable development but has not significantly impacted on the profitable development in Nigeria. This is due to the fact that government consumption expenditure depresses profitable development in Nigeria while capital government expenditure increases development rate of the frugality, but more as been spent on the intermittent expenditure than the capital expenditure over time. It’s recommended that, the Civil government should spend further on education, health and physical architectures. At the same time, there’s the prospect that profit is limited to pursue the requirements programmes. Hence, it’s important that government spends lower on consumption expenditure( intermittent expenditure) and emphasizes more on capital investment that will stimulate private sector investment vis a vis profitable development.

Chapter One

Preface

Background To The Study

The relationship between government expenditure and profitable growth has continued series of debate among scholars. Keynes( 1936) posit that the result to profitable depression is to induce the enterprises to invest through some combination of reduction in interest rates and government capital investment including structure.

This claim that an increase in government expenditure promotes profitable development isn’t supported by all scholars. A good number of prominent authors especially of the neoclassical academy argue that increased government expenditure may decelerate down the aggregate performance of the frugality because in an attempt to finance raising expenditure, government may have to increase levies and or borrowing. The advanced income duty may discourage or may be a counterincentive to fresh work which in turn may reduce income and aggregate demand. In the same tone, high commercial duty leads to increase in product costs and reduce profitability of enterprises and their capital to dodge investment expenditure. On the other hand, increased government borrowing( from the banks) needed to finance its expenditure may contend and crowds- out private sector and this reduce private investment in the frugality. Sachs( 2006) posited that among the developed countries, those with high rates of taxation and high social weal spending perform better on utmost measures of profitable performance compared with countries with low duty low rates of taxation and low social services spending. Hayek( 1989) still combated this argument saying that high situations of government spending in addition to harming, does not, through social weal formed fairness, profitable equivalency and transnational competitiveness. This argument is nearly related to Sudha( 2007) who points out that countries with large public sectors have grown sluggishly. therefore, there’s no general agreement among scholar on the impact of adding government expenditure on profitable development.

According to the profit rallying Allocation and financial Commission – RMFC( 2011) the civil government of Nigeria spends52.2 of total government earnings. The remaining earnings are participated among the Federating States and Original Government Areas( LGAs) on the base of detailed sharing formula.

The position of increase of government profit from oil painting profit andnon-oil earnings including borrowing from internal and external sources has significantly impacted the position of government expenditure in Nigeria over the times under review.

The position of increase in external loans further accelerated the debtover-hand situation and other problems. The problems were so severe that restructuring of the frugality was ineluctable. As a result, a comprehensive profitable reform programme was introduced in 1986. In the period between 1988 and 1997 – a period of structural adaptation and profitable liberalization, the GDP responded to profitable adaptation programs and grew at a positive rate of 4( Onakoya et al, 2013). The real GDP development shows that on aggregate base, when measured by the Real Gross Domestic Product( RGDP) grew by7.8 in 2010( NBS, 2010; CBN, 2010, 2012).

The mismatch between the performance of the Nigerian frugality and massive increase in government total expenditure over the times raises a critical question on its part in promoting profitable growth and development. Some authors contend that the link between public expenditure and profitable development is weak while others report varying degree of reason relationship in Nigeria( Onakoya et al, 2012).

Statement Of The Problem

The relationship between government expenditure and profitable growth has continued to induce series of debate among scholars. Government performs two functions – protection( and security) and provision of certain public goods( Yousif, 2000; Nurudeen and Usman, 2008). Protection function consists of the creation of rule of law and enforcement of property rights. This helps to minimize pitfalls to crime, cover life and property and the nation from external aggression, defense, roads, education, health, power and communication to mention but a many.

Some scholars argue that increase in government expenditure on socio- profitable and physical structures encourages profitable development. For illustration, government expenditure on health and education raises the productivity of labour and increase the development of public affair. also, expenditure on structure similar as roads, dispatches, power etc reduces product costs, increases private sector investment and profitability of enterprises, therefore fostering profitable development. Supporting this view, scholars similar as Keynes( 1936), Sachs( 2006), Cooray( 2009) conclude that expansion of government expenditure contributes appreciatively to profitable development.

nevertheless, some scholars didn’t support the claim that adding government expenditure promotes profitable development, rather they assert that high government expenditure may decelerate down overall total performance of the frugality in that in the shot to finance rising expenditure, government may have to increase levies and/ or borrowing. The advanced income duty may discourage or be a counterincentive to individual working for long hours or searching for fresh work which in turn may reduce income and aggregate demand. In the same way, advanced commercial duty( profit duty) tends to increase product costs and reduces the profitability of enterprises and their capacity to dodge investment expenditure. also, if government increases borrowing( especially from the banks) in order to finance its expenditure, it’ll contend( crowds- out) down the private sector, therefore reducing private investment. It was further argued that in a shot to score cheap fashionability and insure that they continue to remain in power, politicians and government officers occasionally increase expenditure and investment in unproductive systems or in goods that the private sector can produce further efficiently. therefore, government exertion occasionally produces misallocation of coffers and impedes the development of public affair. In fact, the studies by Mitchell( 2005) and Sudha( 2007) shows that large government expenditure has negative impact on profitable development.

In Nigeria, the government expenditure has continued to rise due to bills from oil painting profit( Petroleum profit duty and royalties) and non oil painting profit( company income duty, custom and excise duties, value added duty( Handbasket) and others)( CBN 2012). And increased demand for public( serviceability) goods like roads, communication, power, education and health. either there’s adding need to give both internal and external security for the people and the nation.

Available statistics show that total government expenditure( capital and intermittent) and its factors have continued to rise in the last many decades under review. In the same manner, the composition of government intermittent expenditure shows that expenditure on general administration, defense, National Assembly, internal security, husbandry, construction, transportation and communication, education and health increased during the period under review. Unfortunately, rising government expenditure has not restated to meaningful development and development, as Nigeria ranks among the poorest countries of the world. In addition, numerous Nigerians have continued to live in menial poverty, while further than60.9 of over 180 million population are poor. Although the Nigerian frugality is projected to be growing, poverty is likely to get worse as the gap between the rich and the poor continues to widen. Couple with this, is dilapidated structure( especially roads and power force) that has led to the collapse of numerous diligence, including high position of severance. also, macroeconomic pointers suchlike balance of payments, significances scores, affectation rates, exchange rate, and public savings reveal that Nigeria has not fared well in the last couple of decades under review.

Objects Of The Study

The main ideal of this study is to empirically examine the impact of government expenditure on profitable growth in Nigeria. The specific objects of the study are as follows

To estimate the donation of government expenditure on profitable growth in Nigeria.

To examine factors that as hamper acceptable government expenditure in Nigeria.

To make policy conclusions and recommendations grounded on the results of the study.

Exploration Question

The exploration questions, which would guide this study, are as follows

i) Is there any significant relationship between government expenditure and profitable growth?

ii) Has government expenditure brought about profitable development over time?

iii) What are the factors that hinders government expenditure appropriation?

Exploration Thesis

The thesis that will guide through this exploration is

H0 Government expenditure has no significant relationship with profitable growth in Nigeria.

H1 Government expenditure has significant relationship with profitable growth in Nigeria.

Significance Of The Study

The quality of exploration work lies on the applicability to the society being studied. The significance is the capability to draw a relationship between government expenditure and profitable growth in Nigeria, whether government expenditure has significant impact on Nigeria profitable growth.

Again, this exploration will be of immense value to the different sectors of the frugality( both public and private) most especially the government.

In conclusion, the study would be of immense help to the government, financial authority, individualities, economists, scholars, itineraries, fiscal judges, stock brokers and others who might be interested in probing into the field in the future, by slipping further light into the extensively held view about the relationship between government expenditure and profitable growth.

Exploration Methodology

The analysis that will be made in this study shall be grounded on macroeconomic data in Nigeria frugality. Due to the linearity nature of the model expression, Ordinary Least Forecourt( OLS) estimation system would be employed in carrying the numerical estimates of the portions in the model using Eviews.

Multiple retrogression model shall be used in the estimation. The model shall seek to probe the effect of government expenditure on profitable growth in Nigeria frugality. This is a follow up on the objects of study stated before.

Compass Of The Study

The frugality is a large element with lot of different and occasionally complex corridor; this exploration work will only look at a particular part of the frugality( the financial sector). This work can not cover all the angles that make up the financial sector, but will look at government expenditure as being used by the government for the stabilization and attaining profitable development.

The empirical analysis and estimation covers the period between 1981 and 2016. This restriction is necessary because of thenon-availability of some data.

The data for this study would be attained substantially from secondary sources; particularly from Central Bank of Nigeria( CBN) publications similar as the CBN Statistical Bulletin, CBN Annual Reports and Statements of Accounts, and National Bureau of Statistics publications.

Limitations Of The Study

Finance is one of the factor that help a good exploration. Financial constraint created difficulties in the course of this exploration work, still, it didn’t hamper the exploration. The main limitation of this study is time constraint. The time distributed for the completion of this exploration isn’t acceptable grounded on recent and contemporary happenings with respect to the impact of government expenditure on profitable growth in Nigerian frugality.

Organisation Of The Study

This study shall be divided into five chapters. The first chapter provides the background of the subject matter justifying the need for the study. Chapter two presents affiliated literature on government expenditure and profitable growth. The exploration methodology, which includes the theoretical frame, sources of data, model expression, estimation ways etc, are stated in chapter three while data donation, analysis and interpretation of retrogression result were made in chapter four. Concluding commentary in chapter five reflects on the summary, conclusion, recommendations and suggestion for farther studies grounded on the findings of the study.

Description Of Terms

Capital government expenditure Can be described as spending on fixed means similar as roads, seminaries, hospitals, structure, factory and ministry etc, the benefits of which are durable and lasting for several times.

Capital stock Means the total value of the financial capital of an frugality including supplies as well as accoutrements and shops.

intermittent government expenditure Refers to the charges that government incurs for its conservation, for the society and the frugality in wholeness.

Gross Domestic Product( GDP) Refers to the plutocrat value of goods and services produced in an frugality during a period of time irrespective of the people.

profitable Growth This refers to the increased over time of an frugality’s capacity to produce those goods and services demanded to ameliorate the well- being of the citizens in adding number and diversity. It’s the study of the process by which productive capacity of the frugality is increased over time to bring about rising position in public income.

Economic Development This is a multi dimensional process involving the provision of introductory requirements, acceleration of profitable development, reduction of inequality and severance, eradication of poverty as well as changes in station, constitution and structure in the frugality.