Public Sector Spending and Economic Growth in Nigeria: In Search of a Stable Relationship

Abstract

In this study, recent development in government expenditure and epistemological literatures on the relationship between public spending and economic growth in Nigeria are examined. The primary aim of this paper is to explore the relationship between government expenditure and economic growth with the view to establishing a stable relationship. In view of that, an ARDL model is employed to provide the framework for estimating the existence or otherwise of the equilibrium relationship among the examined variables. However, government as an institution that provide welfare to the populace has a major role to play in deciding where priority spending should be allocated in order to enhance the developmental process and provide sustainable growth in the growing economy. In all submissions that debated on the relationship between public sector spending and economic growth, Keynesian philosophy was among the most prominent and celebrated in contrast to Wagner’s Law. Keynes regards government spending as an exogenous factor which can be utilised as a policy instrument to promote economic growth. Despite the diverse and conflicting empirical evidence on the relationship between public sector expenditure and economic growth that prevail in the literature, the empirical findings from this paper based on the estimated result from ARDL model reveals the existence of positive and significant relationship between public spending on economic growth in Nigeria. Undeniably, government expenditures are considered to be highly important in creating opportunities and widening the productive base at which developing countries can grow, Nigeria is inclusive. To achieve accelerated economic growth, there is need for an in-depth and broad macroeconomic reform in the Nigerian public finance to include certain features of transparency and effectiveness in the implementation of budgetary process. An essential part of the reform policy should be the review of public sector’s roles and responsibilities in the development process and concentrate on the priority areas rather than act as a substitute of the private sector. The inclusion of certain measures on the reform policy will appear satisfactory, for instance, expenditure on public goods that improves the allocative efficiency in the presence of positive externalities should be accorded high priority, including investment in infrastructure, more access to information and communication technology, expenditure on research and development, as well as diversification of the economy.