Download complete full project materials on Impact of Government Capital Expenditure on Economic Growth in Nigeria (1986-2014) from chapter one to five economic project work final year.
Abstract
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This study investigated impact of government capital expenditure on economic growth in Nigeria (1986-2014). Employing the ordinary least square multipleregression analysis to estimate the model specified. Real Gross Domestic Product (RGDP) was adopted as the dependent variable while government capital expenditure (GCEXP) and government recurrent expenditure (GREXP) represents the independent variables.
With the application of Granger Causality test, Johansen Cointegration Test and Error Correction Mechanism, the result shows that there exists a long-run equilibrium relationship between government spending and economic growth in Nigeria. The short-run dynamics adjusts to the long-run equilibrium at the rate of 60% per annum.
TABLE OF CONTENTS
Contents
Title Page
Certification
Dedication
Acknowledgement
Abstract
Table of contents
CHAPTER ONE:Â
INTRODUCTION
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Research Questions
1.4 Objectives of the Study
1.5 Research Hypothesis
1.6 Plan of the Study
CHAPTER TWO:
LITERATURE REVIEW
2.1 Literature Review
2.2 Conceptual Framework on government expenditure
2.3Â Trends in Federal Government Expenditures in Nigeria (1986-2014)
2.4Â Government Spending and Economic Growth
2.5 Theoretical Framework
CHAPTER THREE:
RESEARCH METHODOLOGY
3.0 Introduction
3.2 Sampling Procedure
3.3 Sources of data
3.4 Model Specification
3.5 Method of Estimation
3.6 Conclusion
CHAPTER FOUR:Â
PRESENTATION AND ANALYSIS OF DATA
4.1 Estimation Procedure
4.2 Testing for Co-integration using Johansen approach
4.3 trace test
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
5.2 Conclusion
5.2 Recommendations
Bibliography
Appendix
CHAPTER ONE
1.1 Background of the Study
The direction and magnitude of relationship between government expenditure and economic growth has continued to generate series of debate among scholars. It is obviously presumed that Government performs two basic functions- protection (and security) and provisions of certain public goods.
The Protective function entails creation of rule of law and enforcement of property rights which helps to minimize risks of criminality, protect life and property, and the nation from external attacks; while defense, roads, education, health, and power, etc are goods provided by government (Abu and Abullahi 2010).
Many scholars have supported the fact that increases in government expenditure on socio-economic and physical infrastructures encourage economic growth. For instance, studies conducted by Abu and Abullahi, 2010, Al-Yousif, 2000, Abdullah, 2000 and Cooray, 2009 all concluded that expansion of government expenditure induce economic growth positively.
Their studies simply suggest that government expenditure on health and education raises the productivity of labour and increase the growth of national output. Similarly, expenditure on infrastructure such as roads, communications, power, etc, reduces production costs, increases private sector investment and profitability of firms, thus fostering economic growth (Abu N et al 2010).
It has been the desire of nations from all over the world to improve the welfare of their people and give them the power not only to afford the basic necessities of life, but also to empower them to be economically useful to their nations.
It is the quest to achieve these that nations are stimulated to increase their Gross Domestic Products (GDP), achieve balance of payment equilibrium, achieve price stability, and increase business activities. Thus, economies are working towards achieving economic growth.
Beyond this, they are working towards achieving economic development which does not only involve economic growth, but also transformational changes that accelerate the pace of growth. Though, these are goals, not all nations have been able to achieve them.
This is why nations are still classified into the categories of underdeveloped, developing, emerging and developed. Irrespective of each nation’s category, each has to work towards survival and sustainability by pursuing the goal of economic growth and development.
If the goal of economic growth and development will be achieved, appropriate measures will have to be taken. Various economists have come up with various theories and postulations in this regard. Adam Smith postulated a laissez-faire system such that the government should not intervene to allow the market system free access to pursue surplus value, which according to him, will lead to the wealth of nations (McCreadie, 2009).
Classicalists and neo-classicalists still hold this view. On the contrary, Keynes (1936) came up with a postulation that faulted Adam Smith’s postulation. In his view, the government cannot hands-off out-rightly, as the market has failure tendencies that are costly.
He therefore postulated that the government should be involved by increasing government expenditure to stimulate aggregate demand, which will culminate in economic growth. These two postulations have
governed the process of economic development till date; and the strength of each has been tested overtime.
If the market be made solely responsible for the allocation of resources, as advocated by Smith, circumstances will emerge where the pursuit of private interest will not lead to the efficient employment of resources; neither will there be fair distribution. At such point, it is considered that the market failed.
Government intervention is thus the way out. The government has to increase its expenditure to stimulate aggregate demand to restore the economy and improve economic growth (Keynes, 1936). The question however is what size of government affects economic growth.
Many studies postulate that countries with more growth had large government sizes while those with less growth had smaller government sizes. Knoop (1999) found out from his study that reducing the size of the government reduces economic welfare and growth. But this does not hold in all cases as other studies have come up with contrary results.
Another strand of literature emphasized the effectiveness of government, in order to sustain interest and power; government sometimes increase expenditure and investment in unproductive projects (white elephant) or goods that can better (efficiently) produced by the private sectors.
This irrational activity often produce misallocation of resources and impedes the growth of national output. The studies conducted by Laudan, 1986, Barro, 1991, Engen, Skinner, Folster, and Henrekson, 2001 asserted that increasing government expenditure may slowdown overall performance of the economy.
That is, financing government increasing expenditure by raising taxes or borrowing may induce long-run adverse effects, as higher taxes discourages innovation which in-turn results in lower income and aggregate demand. Likewise, if government finances her expenditure by domestic borrowing, it may crowd-out private investors hereby mitigating the level of growth.
Available statistics show that total government spending has continued to rise steadily all through the year observed. Following the work of Desmond N.I et al (2012); the government capital expenditure on economic services, social and community services, and transfers increased from N15.5M, N1.4M and N100.7M in 1970 to N809120.5M, N120049.2M and N211758.1M in 2009 respectively.
Likewise the recurrent expenditure has witnessed the same upward trend from N25.95M, N43.55M and N511.42M in 1970 to N340193.77M, N346071.95M and N622171.10M respectively in 2009.
The total government recurrent expenditure has consistently been on the increase with about 18 percent rise from 1970-1985 and about 10 percent increases from 1990-2005; in the same manner the capital expenditure has maintained similar upward trend Whether this continuous increase has accentuated the level of growth of the Nigerian economy has necessitated the need for this research work.
This necessitates the research interest for empirical quantitative measure of effect of government spending on growth of the economy.
1.2 Statement of the Problem
The under development of the Nigeria’s economy is a reflection of irregularity of government spending, inappropriate channeling of government funds to development projects, which has made Nigeria’s government to rely on oil for over 80% of her revenue. Nigeria government spending over the years have sky rocketed but the problem here is inefficient channeling of the fund to key priority areas of the economy, or the case of embezzlement (Afolabi and Abdullahi: 2010).
Available CBN statistical data shows that total government expenditure (capital and recurrent) continued to rise over the years.
For instance, while government total capital expenditure on economic services, social and community services, transfers, increased from ₦ 110,163.10 Million, ₦15,034 Million and ₦28340 million respectively in 1980, 1989, 1991 respectively. It further increased to ₦883874.5 million and ₦918548.9 million respectively in 2010 and 2011.
Recurrent expenditure on same hand increased from ₦ 4805 nillion, ₦25994 million and ₦3243 million respectively in same period down to ₦3310343.38 million and ₦3054333 million respectively in 2010 and 2011. (See CBN Statisitical Bulletin, 2011).
A view of the growth pattern of the government spending shows that government spending has risen more proportionately the growing effect of the growth in the economy.
Government expenditure on these and other services or sectors would be expected to generate a corresponding growth trend in the economy. This necessitates the research interest for empirical quantitative measure of the effect of government spending on the growth of the economy.
In addition, many Nigerians have continued to wallow in abject poverty while more than 50% live on less than $ 2 U.S per day. Coupled with these, is the dilapidated infrastructure (especially roads and power supply). That has led to the collapse of many industries including high level of unemployment.
Moreover, macroeconomic indicator like balance of payment, import obligation, inflation rate, exchange rate and national savings reveal that Nigeria has not fared well in the couple of years.
In the last two decade, economic policies global growth and development have changed dramatically. Immediately after the attainment of political independence of most African countries, Nigeria inclusive, there was the belief that they would close the gap separating them from the advanced countries.
Therefore the economic literature literally discussed the quantum leaps in economic growth which the communist and socialist countries made in the first half of the country.
In an attempt to bridge the gaps and attain these quantum leaps in the economy, emphasis was placed on the development of the public sector; so much money has been spent by the government in running of her enterprises with practically little or no impact of the economy.
Reference could be made on government procured $500 million loan from World Bank for NEPA and just recently, the Bureau of Public Enterprise (BPE) said the authority needed about 10 billion to take its power generation capacity from 4,000 megawatts to 10,000 megawatts (Obadan, 1997).
Billions of dollars have spent on NPA over the years, yet it has remained a public waste, causing more nuisances to the public purse.
Various studies on the relationship between government expenditure and economic growth also arrived at different and even conflicting results. Some studies suggest that increase in government expenditure on socio-economic and physical infrastructures, impact on long run growth rate.
For instance, government expenditure on health and education raises tat productivity of labour and increase the growth of national output. Similarly, expenditures on infrastructure output. Similarly, expenditures on infrastructure such as road, power etc. reduces production costs, increases private sector investment and profitability of firms, thus ensuring economic growth.
On the other hand, observation that growth in government spending, mainly based on non-productive spending is accompanied by a reduction in income growth has given rise to the hypothesis that the greater the size of government intervention, the more the negative is its impact (Abu and Abdullahi, 2010).
Despite the rise in government expenditure in Nigeria over the years, there are still public outcries over decaying infrastructural facilities. Also, merely few empirical studies have taken holistic examination of the effect of government expenditure on economic growth regardless of its importance for policy decisions.
More so, for Nigeria to be ready in its quest to become one of the largest economies in the world by the year 2020, determine effect of public expenditure on economic growth is a strategy to fast-track growth in the nation’s economy.
However, some scholars did not support the claim that increasing government expenditure promote economic growth instead they assert that higher government expenditure may slowdown overall performance of the economy. For instance, in an attempt to finance rising expenditure, government may increase taxes and or borrowing. Higher income tax discourages individual from working for long hours or even searching for jobs.
This in turn reduces income and aggregate demand. In the same vein, higher profit, tax tends to increase production cost and reduce investment expenditure increases borrowing (especially from the banks) in order to finance its expenditure, it will compete (crowd-otu) away the private sector, thus reducing private investment.
1.3 Research Questions
- What is the trend and pattern of government capital expenditure and economic growth over the years in Nigeria?
- What is the impact of government capital expenditure on economic growth in Nigeria?
- To what extent has the government capital expenditure affected the Nigerian economy?
1.4 Objectives of the Study
- To examine the trend and pattern of government capital expenditure and economic growth over the years in Nigeria.
- To examine the impact of government capital expenditure on economic growth in Nigeria.
- To examine the extent to which the Nigerian economy has been affected by government capital expenditure in Nigeria.
 1.5 Statement of Hypothesis
Ho: There is no significant impact of government capital expenditure on economic growth.
Hi: There is significant impact of government capital expenditure on economic growth
1.6Plan of the Study
The research work consist of five chapters where chapter one serves as the general introduction i.e. background of the study, scope and limitation of the study, research plan.
Chapter two will cover the available opinion of different writers in consulted textbooks, journals and magazines. Their opinions are reviewed and modified for the purpose of this research work.
Chapter three deals with the methodology used in carrying out the research work.
Chapter four also deals with collection of data, analysis of data and presentation of the data, result review and discussion of result.
Lastly, chapter five gives the summary of the findings necessary recommendations and conclusions and the bibliography.
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