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Government Expenditure and Economic Growth in Nigeria: An Analysis with Dynamic Ordinary Least Squares

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  • Gilbert Deinde Ifarajimi
  • Kehinde Oluwole Ola

Abstract

This study investigates the impact of government expenditure on economic growth from 1981 to 2015 using Dynamic Ordinary Least Squares that incorporates endogenity in its estimation. The unit root test using Augmented Dickey Fuller revealed that all the series were stationary at first difference. The two-step Engle-Granger residual test showed that the residual was stationary at level; thus, there was a long run relationship among the series. The findings obtained from the long run Dynamic OLS showed that government expenditure on administration, government expenditure on economic services and nominal exchange rate were significant and had the expected signs except government expenditure on economic services. The empirical findings further indicated that the ECM was negative and statistically significant at 5%. The speed of adjustment was 71.38%. Lastly, in the short-run analysis, findings revealed that the nominal exchange rate was significant and had the expected sign. This might have been due to the influence of naira depreciation on government expenditure. The study therefore recommends that there is need for restructuring of government expenditure to be in line with macroeconomic objectives and also to reduce expenditure on transfers through economic diversification. Government should also take decisive steps to diversify the economy in order to reduce dependence on oil and to stabilize the value of naira.

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  • Gilbert Deinde Ifarajimi & Kehinde Oluwole Ola, 2017. "Government Expenditure and Economic Growth in Nigeria: An Analysis with Dynamic Ordinary Least Squares," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(5), pages 8-26, May.
    • Handle: RePEc:hur:ijarbs:v:7:y:2017:i:5:p:8-26
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    References listed on IDEAS

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    1. Aladejare, Samson Adeniyi, 2013. "Government spending and economic growth: evidence from Nigeria," MPRA Paper 43916, University Library of Munich, Germany.
    2. Tajudeen Egbetunde Ismail O. Fasanya, 2013. "Public Expenditure and Economic Growth in Nigeria: Evidence from Auto-Regressive Distributed Lag Specification," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 16(1), pages 79-92, May.
    3. António Afonso & Juan Alegre, 2011. "Economic growth and budgetary components: a panel assessment for the EU," Empirical Economics, Springer, vol. 41(3), pages 703-723, December.
    4. Ram, Rati, 1986. "Government Size and Economic Growth: A New Framework and Some Evidencefrom Cross-Section and Time-Series Data," American Economic Review, American Economic Association, vol. 76(1), pages 191-203, March.
    5. Kocherlakota, Narayana R & Yi, Kei-Mu, 1997. "Is There Endogenous Long-Run Growth? Evidence from the United States and the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 235-262, May.
    6. Singh, Balvir & Sahni, Balbir S, 1984. "Causality between Public Expenditure and National Income," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 630-644, November.
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    Cited by:

    1. Udi Joshua, 2019. "An ARDL Approach to the Government Expenditure and Economic Growth Nexus in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(3), pages 152-160, September.
    2. Yusuf Shamsuddeen Nadabo & Suleiman Maigari Salisu, 2021. "Investigating the Expenditure-Economic Growth Nexus in Nigeria the Presence of Structural Breaks: A Nonlinear ARDL Cointegration Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(09), pages 146-153, September.
    3. Michael A. Akume & Gylych Jelilov & Benedict Akanegbu, 2019. "The Impact of Military Spending on Economic Wellbeing in Nigeria," International Journal of Business, Economics and Management, Conscientia Beam, vol. 6(4), pages 186-200.

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