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THE IMPACT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA

ACCOUNTING PROJECT TOPICS AND MATERIALS

ABSTRACT This study investigated the impact of public expenditure on economic growth in Nigeria over a period from 2000 to 2013, the data for the study were collected mainly from the secondary source from the CBN statistical Bulletin, annual report and statement of accounts. The time series data Gross Domestic Product (GDP) serve as the proxy variable whereas, government public expenditure serve as the independent variable via which economic growth is measured during the periods were analyzed using the simple regression analysis. The result of the study reveled that government expenditure has positive effect on economic growth in Nigeria. I therefore recommended that, there is need for government to reduce its budgetary allocation to recurrent expenditure and place more emphasis on the capital expenditure so as to accelerate economic growth of Nigeria.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Government expenditure no doubt is an important instrument for a government to control the economy of a nation. Economists have been well aware of the effects in promoting economic growth. Anyway, the general view is that government expenditure notably on social and economic infrastructure can be growth enhancing although the financing of such expenditure to provide essential infrastructural facilities including transport, electricity, telecommunication, water and sanitation, waste disposal, education and health can be growth retarding (Olukeyode, 2009). Nowadays, the relation between government expenditure and economic growth has continues to generate sense or controversies among scholars in economic literature (Inuwa, 2012).

According to him, the nature of the impact of government expenditure on economic growth is in conclusion, and from the view point of the student researcher is still not incontrovertible. As a matter of fact, while some author or researcher believed that the impact of government expenditure on growth is negative or non-significant (Tuban, 2010). Others believed that the impact is positive and significant (Alexiou, 2009). The structure of Nigeria government expenditure can boldly be categorized into capital and recurrent expenditure (Muritata 2011). The recurrent expenditure is basically government expenses on administration such wages salaries, interest on loans, maintenance cost, etc. However, the expenses on capital project like roads, airports, education, telecommunication, electricity generation etc. are generally referred as capital expenditure (Maritata 2011). Ironically, the eect of government spending in Nigeria growth is still a puzzle and an unresolved issue indeed theoretically, it is an unresolved issue. Although the theoretical positions on the subject are quite diverse, the conventional wisdom is their or spending is a source of economic instability or stagnation. The research does not conclusive support the conventional wisdom a few studies report position and significant negative relationship between government spending and economic growth while others find significantly negative or no relation between an increase in growth in real output. It is against the backdrop, the study is undertaken to empirically evaluate the impact of government expenditure on economic growth in Nigeria. The general view is that public expenditure either recurrent.

Nurudeen and Usman (2010) added that in Nigeria, government expenditure has continued to rise due to the huge receipts from production and sales of crude oil and the increase demand for public (utilities) like good roads, communication, power, education and health. Besides, there is increasing need to provide both internal and external security for the people and the nation. The classical economic school of thought led by Adam smith de-emphasized the role of government in the management of the economy and argued that the economy is inherently self-adjusting and self-equilibrating. This argument is predicated on the belief that the invisible band” would allocate resources more efficiency and this philosophy was branded “laissez-fain” (Smith, 1776). Smith in his ‘wealth of the nations’, argued in favour of free market system which is however regulated to some extent by the government. He pointed out that the price of the commodity was regulated by the market and the demand of those who are willing to pay the price for such commodity. Under competitive environment, the price usually tends towards natural prices at the centre. Smith puts great faith in the regulatory functions of competition both on demand and supply. He reorganized that sometimes condition may prevail which keep the market prices of commodities well above natural prices (Bell 1967:157). However, the great depressions of 1930’s exposed the inability of the market forces and the inability of the economy to absolutely control the economy as predicted by Adam smith.

Hence, Keynes (1936), opined that the government should intervene and stabilize or better still ameliorate the wide swing in the economy. Therefore, it became an acknowledged tenet of the prevailing development theory of the 1950s and 1960s that the economy and urgent problems of development can not be solved by private sector. So the government must get away from its traditional caretaker and regulatory functions and move into the era of active participation in the productive sector. This development made the public sector the prime mover of the economy and as a result, the state was viewed by many as an engine of development. In less developed countries (LDC) such as Nigeria. The intervention of the public sector in economic development especially between 1960s and 1970s was necessary because of the need to: “Tackle the problems of economic growth and development as well as income distribution. “Provide certain indispensable services without which community life would be meaningless and which their nature cannot be left in the hands of private enterprises, for example, some basic socio-economic infrastructures and services which include national defense, maintenance of law and order, etc. In Nigeria, the public sector has contributed greatly to the growth and development of the economic since the attainment of political independence in 1960.

1.2 STATEMENT OF PROBLEM

In the last decade, Nigeria economy has metamorphosed from the level of million of naira and postulating to trillion naira, on the expenditure side of the budget. This will not he surprised if the economy is experiencing surplus or disequilibrium on the records of balance of payment. This indicates that something is definitely wrong either with the way government expands budget or with the ways and manners it has always been computed. Unfortunately, the rising government expenditure has not translated to meaningful growth and development, as Nigeria ranks among the poorest countries in the world. In addition, many Nigerians have continued to wallow in abject poverty, while more than 50 percent live on less than US $ per day, Couple with this, is dilapidated infrastructure (especially roads and power supply that has led to the collapse of many industries, including high level of employment. (Nurudeen and Usman, 2010). Moreover, macroeconomic indicators like balance of payment, input obligations, inflations rates, exchange rate, and national stamps reveal that Nigeria (has not faced well in the last couple of years.

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