AN EMPIRICAL ANALYSIS OF THE IMPACT OF GOVERNMENT EXPENDITURE ON THE ECONOMIC GROWTH OF NIGERIA
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ABSTRACT
This study, reviews the impact of government expenditure on Nigerian economy. Government expenditure is a veritable fiscal policy tools for advancing economic growth and development in most countries of the world. Despite the fact that government expenditure is essential for growth and development, the situation in Nigeria is such that the level of government spending is high but the impact on poverty alleviation and other factors necessary for growth is poor. This study adopted the ordinary least square (OLS) techniques and the Cochrane-Occult autocorrelation method and drawing data from secondary sources. The results shows that government expenditure significantly and positively impacted on GDP in Nigeria from 1970 to 2003. In this study, it was also deduced that there was need for necessary policy reform of government expenditure in Nigeria in order to ensure that increase in government expenditure translate into real growth and development.
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
Successive Nigeria governments have made efforts to develop the economy by embarking on various developmental projects which are expected to bring about the economic emancipation of Nigerians. The federal budget expenditure figures have been on the increase annual bases and the government has witnessed a rise in capital expenditure, the competence of federal expenditure devalued to capital acquisition and development products. The latest part has been the millennium development goal, which has caught up with almost all the developing countries with Nigeria, as no exception. Therefore, the government has gathered more impetus to strengthen the economic base in order to achieve millennium development goals, which is all about economic growth and development in the world countries. To this end the document NEEDS was created to articulate the blue print for economic growth and development in Nigeria up to 2015. NEEDS is the National economic empowerment development strategy and its major goals are wealth creation, employment generation, poverty alleviation and value orientation of the Nigerian people. An articulate observer will notice that there has been volume of government spending directed to the development of the country, but as I write this paper, the nation still wallows in object poverty, poor standard of living and high cost of living which have rocked the economic landscape of the nation, with low age expectancy illiteracy and poor health services, technologically, backwardness and poor social and economic infrastructure continue to pose major challenges to achieving the national development goals. The GDP has remained unattractive and comparatively has placed Nigeria as one of the poorest nations of the world. In spite of the huge budgetary allocation to capital expenditure meant for development, the country has remained underdeveloped. Nigeria has lost decades of development due to negative to slow growth and has been one of the weakest growing economies in the world on per capital income basis especially for the period 1981 – 2000. the GDP grew by an average of 2.8 percent in the 1990s (leaving per capital growth rate at zero), but the average growth rate for 1999 – 2003 period was 3.6percent (with per capital growth of 0.8 percent per annum which is far lower than the 4.2 percent per capital growth rate needed to significantly reduce poverty according to NEEDS document). Relative to its own history and in comparison with other countries in Africa and Asia, especially Indonesia which is comparable to Nigeria. In most respects, its level of economic development over the decade becomes more disappointing with G.D.P of about 45 billion in 2001, and a per capital income of $300, Nigeria had earned approximately $300 billion from oil exports since the mind 1970s, but its capital income was 20 percent less than the 1975 level and this amount to about 70 percent of G.D.P) that it has serious difficulty in surveying existing debt there is great spatial and scholar unevenness in terms of GDP and growth performance, across regions and geopolitical zones of the real sector is still dominated by the primary production sector – agriculture (41%) which is predominantly peasantry with low and declining productivity, crude oil (13%) while the secondary sector especially manufacturing has been stagnating (about 5 – 7% of GDP) thereby making Nigeria of the least industrialized countries in Africa. The services sector has been the fastest growing since independence. This study is expected to unravel the impact of successive government expenditure on the development of country so far.
STATEMENT OF PROBLEM
Efforts of successive Nigeria government to achieve economic growth and development for the country have been fruitless judging from the level of growth and development in the country today. The statement of the problem is based on the following research questions. What factors militated against the expected growth and development that should have been the result of government expenditure over the years. What are the effects of a government expenditure on the growth and development of an economic? What are the growth indicators for the Nigeria economy to meet with the millennium development goals which is performance indicator to measure the growth and development of the country?
1.3 OBJECTIVE OF THE STUDY
(i)To examine the trend of growth and development of the Nigeria economy.
(ii)To evaluate the reason why the economy has not taken on the part of growth and
Development in spite of huge government expenditure to ensure growth and development
(iii)To examine the strategies needed to bring the economy back on course (i.e. to her golden ego). In order to achieve sustainable growth and development
(iv)To X – Ray the volume and type of government expenditure and the targeted areas of growth and development in the economy.
(v)To determine the correlation between government expenditure and the growth development in the economy.
1.4 SCOPE OF STUDY
The scope of the study covers government expenditure from 1980 to 2008 and the level of growth and development achieved within this period. Fortunately, the study will be this privileged to review extensively the NEEDS documents and the success it has achieved so far in transforming the Nigeria economy.
SIGNIFICANCE OF STUDY
Nigeria should bench mark it peers like Indonesia and Malaysia in terms of economic growth and development this high level of resources successive national government have pumped into the economy to engender sustainable growth and development which is yet to be achieve thereby relegating Nigeria to the country of poor and underdevelopment nations, it is also relevant to expose the factors that have militated against the realization of the national growth and development dreams and panaceas to put Nigeria on the part of sustainable growth and development. We are persuaded to state that this study will highlight the key millennium development goals that Nigeria will be challenged to achieve in order to reckon as having jump started itself on the part of growth and development. The study will be relevant and to policy makers in government and will contributed to knowledge especially to those who may be interested in carrying out the research in similar area in future.
HYPOTHESIS OF STUDY
To ascertain the velocity or otherwise of our assumption that government promotes economic growth in Nigeria, the following hypothesis are made.
H0: Government expenditure has no impact on economic growth in Nigeria
H1: Government expenditure has a significant impact on economic growth in Nigeria
1.7 LIMITATION OF STUDY
The weakness of this study lies on the vastness of the topic and the amount of time required obtaining the relevant data and information necessary for the research coupled with the paucity of statistical data in Nigeria and where data are available, the disjointed nature of data. The researcher anticipates some challenges in gathering necessary statistical data spanning over 20 years for the purpose of this research. Also there is the tendency of existence of serial correlation in the measurement of economic relationship due to the use of time series data.
1.8 DEFINITION OF TERMS
(i)Economic Growth: Economic Growth in most cases is interchangeable regarded as economic development and Vice – Versa. It has been defined in various ways by various economists. According Schumpeter (1934) defined economic growth as a gradual and steady change in the long run. Another economist Kindle Berger (1965) defines economic growth is related to a quantitative sustainable increase in the country’s per capital output or income accompanied by expansion it’s labour force, consumption, capital and volume of trade. An economy can grow but for they must develop because of poverty unemployment and inequalities may continue to persist due to the absence of technological and structural changes. But it is difficult to imagine development without economic growth in the absence of an increase in output per capital, particularly when population is growing rapidly.
(ii)Economic Development: Development in a wider sense refers to the problems of underdeveloped countries. Hicks (1957) points out that the problem with underdeveloped countries are concerned with the development of unused resources, even though their uses are well known thus, Schumpeter (1934) defined development as discontinuous and spontaneous change in the stationary state which forever alters and displaces the equilibrium state previously existing. Kindle Berger (1965) elaborated on Schumpeter’s definition by further defining development as implying more output and changes in the technical and institutional arrangement by which it is produced. Development as noted by Friedman (1972) is an innovative process leading to structural transformation of social system development is a wider economic concept the growth. Accordingly to Mydal, it is related to quantitative changes in economic wants, goods, incentives, productively and knowledge or the upward movement of the entire social system. It describes the underlying determinant of growth such as technological and structural changes. In fact, economic development embraces both growth and decline
(iii) Government expenditure: This refers to the expenses, which the government incurs for it own maintenance for the benefit of the society, the economy external bodies and for other countries. It is simply government spending are as detailed below,
Provision of economic services of infrastructures trade and industry, primary production, electricity etc. these services are pre-requisites for the economic development of any economy.
Provision of social and community services such as education, water supply, and hospitals. These public utilities improve the standard of the living of the people To run the general administration of the country.
(iv)Needs; National Economic Empowerment and development strategy. It is Nigeria’s home grown poverty reduction strategy programme (PRSP).
(v)MDG; These are the eight millennium development goal (DDG) which range from halving extreme poverty to halting the spread of HIV/Aids and producing universal primary education, all by the target data 2013 from blue print agreed by all worlds countries and the entire world’s leading developing institutions. The goals are as following
(i)Eradicate Extreme poverty and hunger
(ii)Achieve universal primary education
(iii)Promote gender equality and empower women
(iv)Reduce child mortality
(v)Improve maternal health.
(vi)Combat HIV/Aids, malaria and other disease
(vii)Ensure environmental sustainability
(viii)Development a global partnership for development
(vi)Per capital Income: This is the total gross national income, divided by the total population per capital income usually reported in units of currency per year. It is often used as a measure of wealth of the population of a nation, particularly in comparison to other nations. It is usually expressed in terms of a commonly used international currency such as the Euro or united stated dollar and is useful because it is widely known and produces a straight forward statistics for comparison.
(vii)Per capital expenditure: This is total expenditure divided by the total population. For purpose of our study is amount spent on the total population.
(viii)Third world countries: the economically underdeveloped countries of Asia, Africa, Oceania, and Latin America, considered as an entity with common characteristics, such as poverty high birth rates, and economic dependence on the advanced countries. These are distorted and highly dependent economics devoted to producing primary products for the developed world and to provide markets for their finished goods, traditional, rural social structures, high population growth, and wide spread poverty.
PLAN OF WORK
This study is arranged as follows first chapter contain the introduction and over view of this study as already stated above, the second chapter review the related literature on the study. The third chapter contains research work and methodology used in the research study and the fourth chapter treats the presentation analysis and the interpretation of the result. Finally, the fifth chapter contains the summary, conclusion and recommendation of the study.
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