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Effect of Government Capital Expenditure on Manufacturing Sector Output in Nigeria

Author

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  • Falade Olanipekun Emmanuel
  • Olagbaju Ifeolu Oladiran

Abstract

The study investigates the relationship between government expenditure and manufacturing sector output in Nigeria. Government expenditure is disaggregated into capital and recurrent with a view to analyse the relative effect of these categories of government expenditure with emphasis on the capital component. The study employed time series data from 1970 to 2013. Data on manufacturing sector output, capital and recurrent expenditure, nominal and real Gross Domestic Product (GDP), exchange rate and interest rate were collected from Statistical Bulletin and Annual Report and Statement of Accounts published by the Central Bank of Nigeria (CBN). Econometric evidence revealed stationarity of the variables of interest at their first difference while the Johansen cointegration approach also confirms the existence of one cointegrating relationship at 5 percent level of significance. In addition, error correction estimates revealed that while government capital expenditure has positive relationship with manufacturing sector output in Nigeria, recurrent expenditure exerts negative effect on manufacturing sector output. The results showed that one per cent increase in government capital expenditure resulted in an increase of 11.2 per cent in manufacturing sector output while recurrent expenditure decreases it by 26.9 per cent. This reveals that government capital expenditure has positive impact on manufacturing sector output. The study therefore suggests that larger percentage of government expenditure in the annual budget should be on capital component coupled with improved implementation of expenditure policies rather than recurrent expenditure which does not really have a significant impact on the manufacturing sector.

Suggested Citation

  • Falade Olanipekun Emmanuel & Olagbaju Ifeolu Oladiran, 2015. "Effect of Government Capital Expenditure on Manufacturing Sector Output in Nigeria," Business and Economic Research, Macrothink Institute, vol. 5(2), pages 136-152, December.
    • Handle: RePEc:mth:ber888:v:5:y:2015:i:2:p:136-152
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    References listed on IDEAS

    as
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    3. Robert J. Barro & Paul Romer, 1993. "Economic Growth (1992)," NBER Books, National Bureau of Economic Research, Inc, number barr93-1, February.
    4. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    5. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    6. Olorunfemi Sola & Tomola M. Obamuyi & Felix O. Adekunjo & E.O Ogunleye, 2013. "Manufacturing Performance in Nigeria: Implication for Sustainable Development," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(9), pages 1195-1213, September.
    7. Olorunfemi Sola & Tomola M Obamuyi & Felix O Adekunjo & E.O Ogunleye, 2013. "Manufacturing Performance in Nigeria: Implication for Sustainable Development," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(9), pages 1195-1213.
    8. Clement A.U. Ighodaro & Dickson E. Oriakhi, 2010. "Does The Relationship Between Government Expenditure And Economic Growth Follow Wagner’s Law In Nigeria?," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 10(2), pages 185-198.
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    Cited by:

    1. Oseni, Isiaq Olasunkanmi & Oyelade, Aduralere O., 2023. "Effect of Capital Expenditure on Unemployment Rate in Nigeria," African Journal of Economic Review, African Journal of Economic Review, vol. 11(3), June.
    2. Atif khan Jadoon & Syeda Azra Batool & Ambreen Sarwar & Maria Faiq Javaid & Dur a Shahwar, 2021. "An Investigation into the Channel of Public Expenditure to Boost Industrial Productivity in Pakistan," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 3(2), pages 93-105, September.

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    More about this item

    Keywords

    Government capital expenditure; Manufacturing sector output; Cointegration;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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