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IMPACT OF GOVERNMENT EXPENDITURE ON MAJOR MACROECONOMIC VARIABLES IN NIGERIA, 1980 – 2014
Abstract
Using annual time series data from 1980 to 2014, this study investigated the impact of government expenditure disaggregated into capital (CEXP) and recurrent (REXP) on GDP Per Capita (GDPPC), inflation (INF), unemployment (UNEMP), and Gini index (GINCO, proxy for poverty) respectively to construct principally four econometrics models. The study adopted the ex-post facto research design in the study and five hypotheses were proposed and tested.The multiple regression and Granger causality test of the Ordinary Least Square (OLS) technique of analysis were employed in obtaining the numerical estimates of the coefficients in the different equations. The study estimated the models in the statistical procedure of co-integration and Error-Correction Model (ECM). The results of long run regression showed that government capital and recurrent expenditure both had positive and significant impact on GDP per capita;capital expenditure had a significant negative impact on inflation, while recurrent expenditure had positive but non-significant impact on inflation. Government capital expenditure had a significant negative impact on unemployment, while recurrent expenditure had negative but non-significant impact on unemployment; equally capital and recurrent expenditure showed a significant negative impact on poverty. While bidirectional causality exists between recurrent expenditure and inflation, no causality relationship was found between capital expenditure and inflation, capital expenditure and GDP per capita, and recurrent expenditure and GDP per capita respectively.Error Correction Model (ECM) was introduced in all the equations in order to adjust the short-run discrepancies in the parameters, and it showed a speed of adjustment of 72%, 51%, 24% and 27% respectively, to any disequilibrium within a year. The study recommended that government expenditures should be redirected and refocused towards the growth of the real sectors to stimulate general productivity in the economy; and that deliberate efforts are consciously needed to begin at reversing the observed excessive government recurrent expenditures over capital expenditures given the dangerous and inhibiting effect it has on a typical developing economy.
TABLE OF CONTENTS
Title i
Approval ii
Declaration iii
Dedication iv
Acknowledgements v
Abstract vii
Table of contents viii
List of Tables xi
List of Figures xii
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the Problem 6
1.3 Objectives of the Study 9
1.4 Research Questions 9
1.5 Research Hypotheses 10
1.6 Scope of the Study 10
1.7 Significances of the study 10
References 12
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 CONCEPTUAL FRAMEWORK 15
2.1.1 Concept of Government Expenditure 15
2.1.2 Government expenditure and the economy 19
2.1.3 Concept of fiscal policy 21
2.1.4 Concept of Economic Growth 22
2.1.5 Concept of Inflation 25
2.1.6 Concept of Unemployment 27
2.1.7 The Poverty Concept 28
2.1.8 Poverty and income inequality 32
2.2 THEORETICAL REVIEW 34
2.2.1. Theories or Determinants of Public Expenditure 34
2.2.1.1 Wagner’s Theory of Increasing State Activity 35
2.2.1.2 The Displacement Effect Hypothesis of Wiseman and Peacock 38
2.2.1.3 The Rostow-Musgrave Development Model 39
2.2.2 Theories of Economic Growth 41
2.2.2.1 The Classical theory of Economic Growth 41
2.2.2.2 Keynesians Theory of Economic Growth 42
2.2.2.3 Harrod-Dommar Theory of Economic Growth 43
2.2.2.4 Neoclassical Growth Theory 43
2.2.2.5 Endogenous Growth Model 45
2.2.3 The Nexus between Government Expenditure and Macroeconomic Variables 47
2.2.3.1 Government Expenditure and Economic Growth 47
2.2.3.2 Government Expenditure and Inflation 52
2.2.3.3 Government Expenditure and Unemployment 57
2.2.3.4 Government Expenditure and Poverty Reduction 62
2.3 EMPIRICAL REVIEW 66
2.3.1 Government Expenditure and Economic Growth 66
2.3.2 Government Expenditure and Economic Growth in Nigeria 71
2.3.3 Government Expenditure and Price Stability 75
2.3.4 Government Expenditure and Inflation in Nigeria 79
2.3.5 Government Expenditure and Unemployment 83
2.3.6 Government Expenditure and Unemployment in Nigeria 88
2.3.7 Government Expenditure and Poverty Rate 88
2.3.8 Government Expenditure and Poverty in Nigeria 92
2.4 Review Summary 95
References 105
CHAPTER THREE: METHODOLOGY
3.1 Research Design 128
3.2 Nature and Sources of Data 128
3.3 Analytical Framework 128
3.4 Model Specification 129
3.5 Description of Model Variables 135
3.6 Techniques of Analysis 139
3.7 Other Diagnostic Test 143 References 145
CHAPTER FOUR: DATA PRESENTATION AND DATA ANALYSIS
4.1 Introduction 148
4.2 Data Presentation and Interpretation 148
4.3 Descriptive statistics 157
4.4 Stationarity and Co-integration Tests 158
4.5 Test of hypotheses 160
4.5.1 Analysis and Discussions of Result in Model I 160
4.5.2 Analysis and Discussions of Result in Model II 165
4.5.3 Analysis and Discussions of Result in Model III 169
4.5.4 Analysis and Discussions of Result in Model IV 173
4.5.5 Analysis and Discussions of Result in Model V 177
4.5.6 Further Discussion of Results 178
4.6 Implications of Results 179 References 182
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 183
5.2 Conclusion 183
5.3 Recommendations 185
5.4 Contribution to Knowledge 186
5.5 Recommendations for Further Study 187
Bibliography 188
Appendices 213
LIST OF TABLES
Table 2.1: Summary of Empirical Literature
Table 4.1: The annualized data of government expenditure, capital expenditure and recurrent expenditure 149
Table 4.2: Annualized data for GDP Per Capita, Inflation rate, Unemployment and GiniCoefficient 152
Table 4.3: Summary of the descriptive statistics of the variables 157
Table 4.4: Summary of Unit Root and Co-integration Tests 158
Table 4.5: Long-run Regression Results for Model I 161
Table 4.6: Short-run Regression Results for Model I 163
Table 4.7: Long-run Regression Results for Model II 165
Table 4.8: Short-run Regression Results for Model II 167
Table 4.9: Long-run Regression Results for Model III 169
Table 4.10: Short-run Regression Results for Model III 171
Table 4.11: Long-run Regression Results for Model IV 173
Table 4.12: Short-run Regression Results for Model IV 175
Table 4.13: Presentation of Granger Causality Result for Model V 177
Table 4.14: Specification Error Test 178
Table 4.15: Test for Multicollinearity 179
LIST OF FIGURES
Fig. 4.1.Is the graphical representation of Government (Total, Capital and Recurrent) Expenditure from 1980-2013. 151
Fig. 4.2. Line graph of trends of per capita gross domestic product from 1980-2013 153
Fig. 4.3. Line graph of trends of inflation rate from 1980-2013 154
Fig. 4.4. Line graph of trends of unemployment rate from 1980-2013 155
FIG. 4.5. Line graph of trends of gini-coefficient from 1980-2013 156
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