Public Expenditure and Economic Growth Relationship: Further Evidence from Nigerian Context

Abstract

In response to inconclusive findings by extant empirical studies on government spendingeconomic growth nexus, this study explores the effects of aggregate public expenditure, recurrent government expenditure and capital government expenditure on economic growth, and the effect of economic growth on aggregate public expenditure. Using a time series data set from Nigerian context for the period between 1981 and 2018 and analysing same with OLS regression model after a pre-estimation unit root test, an impressive results emerged. First, the study found that whereas aggregate public expenditure positively affects economic growth, recurrent government expenditure and capital government expenditure have insignificant effects on economic growth. Second, the study found that economic growth positively affects government spending. These results offer an insight that would enable fiscal policy makers to insist on improved government spending.

Simulating the macroeconomic impact of expansion in total government expenditure on the economy of Nigeria

“…This is premised on the fact that such increased government expenditure could boost the fresh purchasing power of private citizens, thus enhancing aggregate demand for goods and services even during periods of depression (Chipaumire et al. 2014; Onuoha and Okoye 2020).…”

“…Keynesians insist that government spending has the tendency to impact positively on growth when the government borrows from the private sector and repays back through various spending programmes such as infrastructural development, thus compensating for the seemingly crowding-out effect on the private sector. This is premised on the fact that such increased government expenditure could boost the fresh purchasing power of private citizens, thus enhancing aggregate demand for goods and services even during periods of depression (Chipaumire et al 2014;Onuoha and Okoye 2020).…”