Public Expenditure and Economic Growth in Nigeria (A Granger Causality Approach) 1983-2012

Abstract

This paper examines the impact of government expenditure on the Nigerian economy for the period 1983 - 2012. The government expenditure components used as the explanatory variables in the model are: expenditures on Health, Education, Defense, Agriculture and Transportation and Communication. The Gross Domestic Product (GDP) was used as a parameter for measuring economic growth. In order to establish the link between Government expenditure and economic growth in Nigeria, secondary data were collected from the Central Bank of Nigeria (CBN) statistical bulletin. The Augmented Dickey-Fuller (Stationarity) unit root test revealed that there is no unit root in the variables. The Johansen cointegration test result confirms that a long run relationship exists between the Gross Domestic Product (GDP) and government expenditure on Health, Education, Defense, Agriculture and Transportation and Communication. The pairwise granger causality test reveals that dual causalities exists between Government expenditure on health and the GDP, expenditure on education and GDP, expenditure on Agriculture and GDP and expenditure on Transport and Communication and GDP while the Gross Domestic Product causes Defense expenditure. This study concludes that a significant relationship exists between government expenditure and the Gross Domestic Product. It recommends strict monitoring of the expenditure on defense and the provision of modern equipments for the navy, the army and the air force as this would help in fighting the increasing rate of insurgency in the North. There is also need for the increased funding to these critical sectors of the economy in order to facilitate economic growth and the attainment of the millennium development goals.