AN EMPIRICAL ANALYSIS OF THE IMPACT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH

ABSTRACT

Numerous studies have been carried out on the impact of government expenditure on economic growth at different times in different countries albeit with mixed findings. This study empirically investigated the impact of government expenditure on economic growth in Nigeria for the period 1981-2022. The variables employed by the study include; real gross domestic product (RGDP), a proxy for economic growth, as the dependent variable while capital expenditure (CEX), recurrent expenditure (REX), total debt (TDT) and inflation (INF) were used as the independent variables. Augmented Dickey-fuller (ADF) test was used for the unit root test and the variables were found to be stationary at first difference. Johansen (1988) technique was used to establish co-integration amongst the variables. Error correction mechanism was employed to ascertain the relationship in the short run based on data extracted from the Central Bank of Nigeria (CBN) statistical bulletin and World Development Indicators (WDI). The results reveal that there is, overall, a positive impact of government expenditure on economic growth in Nigeria. The study therefore suggests that government spending should be more of capital expenditure. Also, an appropriate policy mix should be adopted in order to effectively and efficiently manage inflation that might result from capital expenditure by the government.