Government expenditure and economic growth: evidence from the critical sectors in an emerging economy

Abstract

This study examines the impact of government expenditure on education, health, agriculture, pensions and gratuities and public debt servicing on economic growth of Nigeria for forty-year period 1981-2020. The research design is _ex-post facto _withtime series data collected from Central Bank of Nigeria Statistical Bulletin and Nigeria Bureau of Statistics. Using Augmented Dickey-Fuller for unit root test all the variables was stationary at first difference. The Johansen co-integration test revealed a long-run equilibrium relationship among the variables. Analyzing the data with Vector Error Correction Model the results reveal that expenditure on education has long and short run positive and significant impact on economic growth. Expenditure on health and agriculture has positive and significant impact while pensions/gratuities and public debt servicing has negative and non-significant impact on economic growth in the long run but all positive and non-significant in the short run. Government is encouraged to increase funding to education, health, agriculture in order to increase the level of productivity and economic growth, encourage retirees to invest their pensions and gratuities in economic enhancing ventures, and limit its borrowings and seek for debt reduction or forgiveness.