Government Capital Expenditure and Economic Growth in Nigeria

Abstract

This study examined government capital expenditure and economic growth, using annual time series data for the period from 1972-2018. In view of the need to understand public expenditure on economic growth, this study sought to establish the relationship between capital expenditure and economic growth in Nigeria. The study employed the error correction mechanism (ECM) methodology in estimating the relevant equation. However, before the final result was estimated, the study has tested for unit root using the augmented Dickey-Fuller (ADF) test and Philips-Perron (PP) test. The study also tested for the long run equilibrium relationship among the variables using Johansen-Jesulius multivariate co-integration approach. The Granger causality test was also carried out to investigate the direction of causality between gross domestic product and the various components of government capital expenditure in Nigeria. The result of the co-integration test showed that the variables are co-integrated and hence there is a long run relationship among them. The granger causality test revealed that there were bi-directional relationship between gross domestic product and capital expenditure on social and community services, expenditure on administration, expenditure on economic services and expenditure on transfers. The empirical results showed that previous one and two period values of gross domestic product have positive and significant impact on the current value of gross domestic product in Nigeria. The results also showed that public capital expenditures on administration have positive and significant impact on economic growth. Further examination of the results showed that capital expenditure on economic services has positive impact on economic growth in Nigeria. Meanwhile the results showed that capital expenditure on social and community services has positive impact on economic growth. Lastly, the results revealed that capital expenditure on transfer has negative relationship wi

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