Impact of Government Expenditure on Economic Growth
CHAPTER ONE INTRODUCTION I. 0 INTRODUCTION 1. 1 BACKGROUND TO STUDY According to Wikipedia encyclopedia, Economic growth refers to the increase in the amount of goods produced by a country; this is a measure of the economic performance of the country while government expenditure is refered to as an outflow resources from government to other sectors of the economy, government expenditure (or government spending) includes all government consumption, investment but excludes transfer payments made by the state.
Government expenditure is subdivided into recurrent and capital expenditures. Capital expenditure can be defined as payment for non-financial assets used in production for more than one year, e. g. expenses incurred on capital projects such as electricity generation, telecommunication, roads e. t. c. while recurrent expenditures are payments for non-repayable transactions within a year e. g. salaries, wages, interest on loans, maintenance e. t. c (CBN, 2003).
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There has been a recent revival of interest in growth theory which has also sparked interest among researchers in verifying and understanding the linkages between government spending and economic growth especially in developing countries like Nigeria. One of the major functions of government spending is to provide infrastructural facilities, so also does the maintenance of these facilities require a substantial amount of spending. Over the past decades, the public sector spending has been increasing in geometric term through government various activities and interactions with its Ministries, Departments and Agencies (MDA’s), (Niloy et al. 003). Some scholars argue that an increase in public expenditure either recurrent or capital expenditure, notably on social and economic infrastructure can be growth enhancing though the sources of financing such expenditures to provide essential infrastructural facilities including transport, electricity, potable water, sanitation, waste disposal, education and health can be growth retarding (for example, the negative effect associated with borrowing, taxation and excessive debt). For example, 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. But if the source of financing such public expenditures is through borrowing it could lead to crowding out private investment which would in turn retard the growth process in the short run and diminish capital accumulation in the Long run (Diamond, 1989) The effect of government spending on economic growth still remains largely an unresolved issue theoretically as well as empirically.
Although the theoretical positions on the subject are quite diverse, the conventional wisdom is that a large government spending is a source of economic instability or stagnation. Empirical research, however, does not conclusively support the conventional wisdom. A few studies report positive and significant relation between government spending and economic growth while several others find significantly negative or no relation between an increase in government spending and growth in real output. 1. 2 Statement of problem
In the last decade, the Nigerian economy has metamorphosed from the level of million naira to billion naira and now arrived to trillion naira on the expenditure side of the budget. Therefore it will not be alarming if the economy is experiencing surplus or equilibrium on the records of balance of payment. Better still, if there are infrastructures to improve the quality of life, attract massive foreign direct investment or social amenities to raise the welfare and living standards of an average citizen of the economy but that has not been the case.
It is the general view that increased public expenditure will in addition to addressing the nation’s foremost needs, stimulate the economy thereby generating a large number of socially useful jobs and business opportunities and consequently fostering sustainable economic growth and development. All these are not there, yet we always have a very high estimated expenditure. This indicates that something is definitely wrong either with the way government implements the budget or with the ways and manners it has always been computed. 1. 3 Research Questions
Hence, in order to justify reasons for so much expansionary effects on the way and manner public expenditure either capital or recurrent expenditure have been geometrically been increasing over the years so as to finance the infrastructural facilities with a view to raise the welfare of average citizen of the economy and improve the living standard by increasing national output, this study aims to provide solutions to the following questions: 1. Is there any causal relationship between government expenditure either capital or recurrent expenditure and economic growth in Nigeria? 2.
What impact does public spending on Infrastructural facilities have on economic growth in Nigeria? 3. Is it true that has the nation is expanding its public expenditure on provision of infrastructural facilities, the economy has been growth-enhancing? 1. 4 THE RESEARCH OBJECTIVES The importance of the role of government expenditure on essential infrastructural facilities to achieving sustainable economic growth has been stressed earlier in the introduction to this work. Therefore efforts aimed at improving and maintaining the state of infrastructural facilities in Nigeria would be worthwhile.
The main objective of this research is to evaluate the impact of government spending either capital or recurrent expenditure on economic growth. The research specifically intends to find answers to the research objectives raised which includes the following; 1. Examine if government spending on either capital or recurrent have any significant impact on economic growth in Nigeria. 2. Examine whether increase in government spending causes growth or growth causes government spending to increase. 3. Examine the state of infrastructural facilities in Nigeria. 1. 5 SIGNIFICANCE OF THE RESEARCH
The study at its completion would be relevant in the following ways; First, it shall provide a basic understanding of the causal relationship between government spending and growth in Nigeria. Secondly, the outcome of the study will aid government in channeling its limited financial resources towards sectors in the economy that are growth enhancing. 1. 6 RESEARCH HYPOTHESES H0: Government spending (capital and recurrent expenditure) does not have any significant impact on Gross domestic product H1: Government spending (capital and recurrent) has significant impact on Gross domestic product 1. SCOPE AND LIMITATION OF THE STUDY The study shall cover a period of 21 years, from 1990-2010. Total capital and recurrent expenditures would be used as proxy variables to measure the impact of government expenditure while Gross Domestic Product (GDP) will be used as the proxy variable to measure economic growth. 1. 8 DEFINITION OF TERMS Government expenditure: Government Expenditure refers to the expenses incurred by the State for the maintenance of the economy as a whole. Economic growth is defined as a sustained increase in a country’s real GNP and per capita real GNP. . 9 REFERENCES •CBN (2003), Highway Maintenance in Nigeria: Lessons from other countries. (Research Department Occasional Paper No. 27) •Diamond, J. (1989). Government Expenditure and growth. Finance and Development 27(3): December. •Niloy, B. , Emranul. M. H and Denise. R. O (2003): Public Expenditure and Economic Growth: A Disaggregated Analysis for Developing Countries, JEL, Publication. CHAPTER TWO LITERATURE REVIEW 2. 0 INTRODUCTION
So many economic scholars have tried to investigate the relationship between public spending on infrastructure and the rate of economic growth, to examine whether public spending on infrastructure increases the long-term steady growth rate of the economy. Kweka and Morrissey (1999) studies on government spending and economic growth in Tanzania asserted that the general view is that public investment on physical infrastructure and human capital can enhance growth. However, some scholars did not support the claim that increasing government expenditure promotes economic growth, instead hey 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 costs and reduces investment expenditure as well as profitability of firms.
Moreover, if government increases borrowing (especially from the banks) in order to finance its expenditure, it will compete (crowds-out) away the private sector, thus reducing private investment. Furthermore, in a bid to score cheap popularity and ensure that they continue to remain in power, politicians and governments officials sometimes increase expenditure and investment in unproductive projects or in goods that the private sector can produce more efficiently. Thus, government activity sometimes produces misallocation of resources and impedes the growth of national output.
There are quite a number of literature that tried to estimate the impact of government spending on infrastructure and productivity, showing that government policy effect on economic growth becomes significant, because it presents an avenue for government policy to increase the growth rate of the economy. For example, the level of government investment could affect both private investment and the long-run rate of growth. This is so because public investment exhibits the nature of non-excludable and non-rivalry in consumption (i. e. spillover effect).
This suggests that production depends not only on capital and labour but also on government spending (G). 2. 1 Conceptual Framework Government Expenditure refers to the expenses incurred by the state for the maintenance of the economy as a whole. Government expenditures can be classified into capital and recurrent Expenditures, capital expenditure involves spending on items that do not re-occur every year and are durable in nature. For instance, construction of roads, schools, hospitals e. t. c. While recurrent expenditure refers to planned spending on items that constitute running costs e. . salaries, wages e. t. c. Government spending as a fiscal tool serves useful roles in the process of controlling inflation, unemployment, depression, balance of payment equilibrium and foreign exchange rate stability. In the period of depression and unemployment, government spending causes aggregate demand to rise and production and supply of goods and services follow the same direction. As a result, the increases in the supply of goods and services coupled with a rise in the aggregate demand exert a downward pressure on unemployment and depression.
In the case of persistent rise in price (inflation) and the depreciation in the value of money, it is expected that reduction in government expenditures discourages aggregate demand and inflation and falling in the value of exchange rate are controlled. It is worth to note that these two tools may be adopted simultaneously in the economy to achieve and sustain growth. A rise in the government expenditure has the same effects as a reduction in the tax rates on aggregate demand.
Similarly, the effects of a reduction in the government expenditures are the same as increases in tax rates. Economic Growth on the other hand, is the process whereby there is a steady long-term increase in real GDP and improvement in living standards; and “movements in real GDP are the best widely available measure of the level and growth of output” (Samuelson and Nordhaus, 1998). Theoretically, government expenditure is positively correlated with gross domestic product (GDP) (Anyanwu (1997), McConnell and Brue (2005) and Onoh (2007)).
The underlying assumptions however are that: (1) The economy is operating below the full-equilibrium level (2) The expenditure is channeled to productive investments to increase output of goods and services, and to increase national income. As a result, increase (decrease) in government expenditure may lead to increase (decrease) in gross domestic product. However, government expenditure should not be increased indefinitely to avoid inflationary pressures from setting in. The increase should continue only to the point of achieving full-employment level.
The relationship between public expenditure and national income has been the subject of two contending propositions. The first and the more popular is Wagner’s Law. Wagner’s law proposes that there is a long-run tendency for public expenditure to grow relative to some national income aggregates such as the Gross Domestic Product (GDP). In other words, the causality of the link between public expenditure and national income runs from national income to public expenditure. The second proposition is associated with Keynes. To
Keynes, public expenditure is an exogenous factor and a policy instrument for increasing national income. Consequently, he believes that the causality of the relationship between public expenditure and national income runs from expenditure to income. 2. 2 JUSTIFICATION FOR GOVERNMENT EXPENDITURE Barro and Sala-i-Martin (1995) classified expenditures as productive and unproductive and assumed that productive expenditures have a direct impact on the rate of economic growth and the unproductive expenditures have an indirect or no effect.
It is widely recognized that public expenditure on infrastructure such as roads, raises the economic potential of an economy. At least since the influential study of Aschauer (1993), it is argued that a rise in productive government activity increases output. Government expenditures are primarily funds released by the three layers of the government namely, the Federal, State and Local governments. These funds are applied through various budgets. Public spending is a reflection of the policy choices of the government.
Ideas regarding the need of public spending have varied over time, the philosophy of laissez-faire postulated by the classical economist assumed that the best government was the one that governed the least. It was argued that everyone was the best judge of its own interest and the government could not be expected to take judgments superior to the private ones. The government’s responsibilities were then limited to preserving the state and undertaking activities like (defense, law and order, administration) needed by the economy but were commercially unprofitable.
The classical economist assumed that the forces of demand and supply can regulate the economy efficiently with minimal government intervention. However, market failures have struck out the laissez faire doctrine due to reasons put forward by (Brown and Jackson, 1990) as 1)Existence of public goods with characteristics of non-excludability. 2)Externalities 3)Imperfect Competition 4)Incomplete information and uncertainty The failure of the market mechanism to boost economies has forced increased intervention by the state; this has led to the rapid growth of the public ector as well as increase in public spending. Though imperfection in the market system and the resultant failures has been adduced to be the major reasons for government intervention in an economy, inefficiency and wrong policy prescriptions do arise in government activities, therefore government intervention does not guarantee growth /stabilization in an economy. John Maynard Keynes, one of the foremost economists of the 20th century advocated government spending, even if the government has to run to a deficit to conduct such spending.
He hypothesized that when the economy was in a downturn and unemployment of capital and labor was high, governments can spend money to create jobs and employ capital that have been underutilized. He opined that an increase in government consumption is likely to lead to an increased investment, employment, profitability and consequently economic growth through multiplier effects on aggregate demand. As a result, government spending augments the aggregate demand, which provokes an increased output depending on expenditure multipliers. 2. 3 THEORY OF INCREASING PUBLIC EXPENDITURE
There are two important and well-known theories of increasing public expenditure. The first one is connected with Wagner and the other with Wiseman and Peacock. 2. 3. 1WAGNER’S LAW OF INCREASING STATE ACTIVITIES Adolph Wagner (1835-1917) was a German economist who based his Law of Increasing State Activities on historical facts, primarily of Germany. According to Wagner, there are inherent tendencies for the activities of different layers of a government (such as central, state and local governments) to increase both intensively and extensively.
There is a functional relationship between the growth of an economy and government activities with the result that the governmental sector grows faster than the economy. From the original version of this theory it is not clear whether Wagner was referring to an increase in (a) Absolute level of public expenditure; (b) The ratio of government expenditure to GNP; or (c) Proportion of public sector in the economy. Musgrave believes that Wagner was thinking of proportion of public sector in the economy.
Nitti (1903) not only supported Wagner’s thesis but also concluded with empirical evidence that it was equally applicable to several other governments which differed widely from each-others (Nitti, 1903). All kinds of governments, irrespective of their levels (say, the central or state government), intentions (peaceful or warlike), and size, etc. , had exhibited the same tendency of increasing public expenditure. 2. 3. 2 WISEMAN-PEACOCK HYPOTHESIS The second thesis dealing with the growth of public expenditure was put forth by Wiseman and Peacock in their study of public expenditure in UK for the period 1890-1955.
The main resent of the thesis is that public expenditure does not increase in a smooth and continuous manner, but in jerks or step like fashion. At times, some social or other disturbance takes place creating a need for increased public expenditure which the existing public revenue cannot meet. While earlier, due to an insufficient pressure for public expenditure, the revenue constraint was dominating and restraining an expansion in public expenditure, now under changed requirements such a restraint gives way. The public expenditure increases and makes the inadequacy of the present revenue quite clear to everyone.
The movement from the older level of expenditure and taxation to a new and higher level is the displacement effect. The inadequacy of the revenue as compared with the required public expenditure creates an inspection effect. The government and the people review the revenue position and the need to find a solution of the important problems that have come up and agree to the required adjustments to finance the increased expenditure. 2. 4 REVIEW OF EMPIRICAL LITERATURE In Nigeria, many authors have also attempted to examine government expenditure-economic growth relationship.
For example, (Oyinlola, 1993) examined the relationship between the Nigeria’s defense sector and economic development, and reported a positive impact of defense expenditure on economic growth. Fajingbesi et al (1999) empirically investigated the relationship between government expenditure and economic growth in Nigeria. The econometric results indicated that real government capital expenditure has a significant positive influence on real output. However, the results showed also that real government recurrent expenditure affects growth only by little.
Also, a study by Ogiogio (1995) revealed a long-term relationship between government expenditure and economic growth. Moreover, the author’s findings showed that recurrent expenditure exerts more influence than capital expenditure on growth. Akpan (2005) used a disaggregated approach to determine the components (that include capital, recurrent, administrative, economic service, social and community service and transfers) of government expenditure that enhances growth, and those that do not, he concluded that there was no significant association between most components of government expenditure and economic growth.
Olugbenga and Owoye (2007) investigated the relationships between government expenditure and economic growth for a group of 30 OECD countries during the period 1970-2005. The regression results showed the existence of a long run relationship between government expenditure and economic growth. In addition, the authors observed a unidirectional causality from government expenditure to growth for 16 out of the OECD countries, thus supporting the Keynesian hypothesis. However, causality runs from economic growth to government expenditure in 10 out of the countries, confirming the Wagner’s law.
Finally, the authors found the existence of feedback relationship between government expenditure and economic growth for a group of four countries. Nurudeen and Usman (2010) in an attempt to investigate the effect of government expenditure on economic growth employed a disaggregated analysis. The results reveal that government total capital expenditure (TCAP), total recurrent expenditure (TREC), and government expenditure on education (EDU) have negative effect on economic growth.
On the contrary, rising government expenditure on transport and communication (TRACO), and health (HEA) results to an increase in economic growth. The authors recommended increase in both capital and recurrent expenditures on education, investment in transport and communication, health sector, funding of anticorruption agencies to tackle high level of corruption found in public offices. Ogundipe and Aworinde (2011) investigated the impact of public investment on economic growth in Nigeria. Regression analysis and unit root test were used to examine the stationary of the variables considered in the study.
The Study used the annual data covering the period between1970-2008, it was discovered that government spending in agriculture, education, defense and internal security services as well as structural adjustment programme were statistically significant while government spending in health, transport and telecommunication sectors are statistically insignificant. This implies that government spending in agriculture, education, defense, and internal security services as well as structural adjustment programme are significant factors influencing the level of economic growth in Nigeria.
Ekpo’s (1994) study in Nigeria (1960-1992) revealed that public sector investment in infrastructure complements the private sector and implicitly spurs growth. Furthermore, a cross country study conducted by Jeppelli and Meana (1994) revealed that public expenditures on investment and consumption impacted differently on economic activity. Public investment was found to stimulate output thereby increasing government revenues (which, in turn, enhance government spending).
Aigbokhan (1999) in his study on ‘Infrastructure, private investment and economic growth in Nigeria’ concluded that infrastructure variables have positive correlation with private investment and economic growth. This implies that “if effectively applied, public spending on services is capable of impacting positively and strongly on growth”. He concluded that to promote investment-led growth, there should be adequate funding on infrastructure both to create new capacities as well as maintaining existing capacities. Shioji (2001) based his study on US and Japan.
Using panel data, (1958-1978) finds that infrastructure capital has a significant positive effect on long-run output in both countries. Sturm (1998) studies revealed that infrastructure investment has positively influenced output in the Netherlands. Mittnik and Neumann (2001) also established that public investment has positive influence on GDP. Ghali (1998) studies on Tunisia, found a positive relationship between public investment and growth while AI-faris (2002), found either a weak or insignificant relationship, that is, government consumption expenditure reduces the rate of growth.
Most of these studies used cross-section data to link measure of government spending with economic growth rates. This approach was however criticized because such approach could only lead to identifying correlation but not causation between variables. Niloy and Osborn (2003) used a disaggregated approach to investigate the impact of public expenditure on economic growth for 30 developing countries in 1970s and 1980s.
The authors confirmed that government capital expenditure in GDP has a significant positive association with economic growth, but the share of government current expenditure in GDP was shown to be insignificant in explaining economic growth. At the sectoral level, government investment expenditure on education was the only variable that had significant effect on economic growth, especially when budget constraint and omitted variables are included Gregorio (2007) used the heterogeneous panel to investigate the impact of government expenditure on economic growth.
The authors discovered that countries with large government expenditure tend to experience higher growth, but the effect varies from country to country. In Saudi Arabia, Abdulah (2000) analyzed the relationship between government expenditure and economic growth. The author reported that the size of government is very important in the performance of economy. He advised that government should increase its spending on infrastructure, social and economic activities. In addition, government should encourage and support the private sector to accelerate economic growth.
Loizides and Vamvoukas (2005) employed the trivariate causality test to examine the relationship between government expenditure and economic growth, using data set on Greece, United Kingdom and Ireland. The authors found that government size granger causes economic growth in all the countries they studied. The finding was true for Ireland and the United Kingdom both in the long run and short run. The results also indicated that economic growth granger causes public expenditure for Greece and United Kingdom, when inflation is included.
Mitchell (2005) argued that the American government expenditure has grown too much in the last couple of years and has contributed to the negative growth. The author suggested that government should cut its spending, particularly on projects and programmes that generates least benefits or impose highest cost. In Sweden, Peter (2003) examined the effect of government expenditure on economic growth during 1960-2001 periods. The author emphasized that government spends too much and it might slow down economic growth.
Devarajan, Swaroop and Zou (1996) studied the relationship between the composition of government expenditure and economic growth for a group of developing countries. The regression results illustrated that capital expenditure has a significant negative association with growth of real GDP per capita. However, the results showed that recurrent expenditure is positively related to real GDP per capita. In India, Rajan and Sharma (2008) examined the effect of government development expenditure on economic growth during the period 1950-2007.
The authors discovered a significant positive impact of government expenditure on economic growth. They also reported the existence of co-integration among the variables. Komain and Brahmasrene (2007) examined the association between government expenditure and economic growth in Thailand, by employing the Granger causality test. The results revealed that government expenditures and economic growth are not co-integrated. Moreover, the results indicated a unidirectional relationship, as causality runs from government expenditures to growth.
Lastly, the results illustrated a significant positive effect of government spending on economic growth. Al-Yousif (2000) indicated that government spending has a positive relationship with economic growth in Saudi Arabia. Kweka and Morrissey (1999), found that public investment on physical infrastructure or human capital can be growth enhancing, but because of disincentive effects the financing of such investment might be growth retarding. This means that if public investment is financed through taxation, it may discourage private investment thereby affecting economic growth negatively.
Therefore the overall effects will depend on the trade-off between the productivity of public investment and the distortionary effects of taxes. Evidently, from the studies reviewed so far there seems to be lack of consensus on the impact of public expenditure on economic growth and development. Positive and negative impact of public expenditure on economic growth was obtained. The present study of the impact of government expenditure on economic growth in Nigeria empirically investigates the foregoing evidences. 2. 5 References •Abdullah HA, (2000).
The Relationship between Government Expenditure and Economic Growth in Saudi Arabia. Journal of Administrative Science, 12(2): 173-191. •Akpan N. I (2005). Government Expenditure and Economic Growth in Nigeria: A Disaggregated Approach. CBN Economic and Financial Review. •Al-Faris, A. F. (2002). Public expenditure and economic growth in the Gulf Cooperation Council countries. Applied Economics: p. 1187- 1193. •Al-Yousif Y, 2000. Does Government Expenditure Inhibit or Promote Economic Growth: Some Empirical Evidence from Saudi Arabia. Indian Economic Journal, 48(2). Anyanwu, J. C. (1997): Nigerian Public Finance. Onitsha: Joanee Educational Publishers Ltd. •Aschauer, David (1993). “Genuine economic returns to infrastructure investment” Policy studies Journals 21: p. 380-390. •Aigbokan, B. E. (1999), Evaluating Investment on Basic Infrastructure in Nigeria. Proceedings of the 8th annual Conference of the zonal Research Units (Organized by Research Dept. , Central Bank of Nigeria) at Hamdala Hotel, Kaduna, 11 -1 5 June 1 999), p. 208, •Barro, R. J and Sala-i-martin X. (1995), “Government Spending in a Simple Model of Endogenous growth”. Brown and Jackson (1990) Capital Market and Growth (London: Macmillian, 1961). •Davarajan S, Swaroop V, Zou H (1996). The Composition of Public Expenditure and Economic Growth” J. Monet. Econ. , 37: 313-344. •Fajingbesi A. A Odusola A. F, (1999). Public Expenditure and Growth. A Paper Presented at a Training Programme on Fiscal Policy Planning Management in Nigeria, Organized by NCEMA, Ibadan, Oyo State. •Ghali, K. H (1998). Public investment and private capital formation in a vector error correction model of growth. Applied Econoniics-30: 837-844. •Gregorio A, Ghosh S (2007).
The impact of Government Expenditure on Growth: Empirical Evidence from Heterogeneous panel. •Keynes, J. M. (1936) General Theory of Employment, Interest and Money, London: Macmillan. •Koman J, Bratimasrene T (2007) . The relationship between Government Expenditure and Economic Growth in Thailand. •Kweka. J. P, and Morrissey, (1999) Government Spending and Economic growth: Empirical Evidence from Tanzania (1965- 1996). DSA annual Conference Inc, New Haven. •Loizides J, Vamvoukas G, (2005). Government Expenditure and Economic Growth: Evidence from Trivariate Causality Testing. Journal of Applied Economics, 8(1): 125-152. Mitchell JD, (2005). The Impact of Government Spending on Economic Growth. Backgrounder, 1831. •Mittnik, S. and Neumann, T. (2001). Dynamic effects of public investment: Vector autoregressive evidence from six industrialized countries. Empirical economics, Volume 26: 429 – 446 •McConnell and Brue (2005): Economics New York: McGraw-Hill and Irwin. •Niloy B, Emranul HM, Osborn DR, (2003). Public Expenditure and Economic Growth: A Disaggregated Analysis for Developing Countries. •Nordhaus, William D. and Paul A. Samuelson (1998). Economics, 15th edition, New York: McGraw-Hill. •Nurudeen . A. and Usman (2010) .
A. Government Expenditure and Economic Growth in Nigeria. A Disaggregated Analysis 1970-2008, Business and Economics Journal Vol. 2010-BEJ 4. •Ogiogio G. O (1995). Government Expenditure and Economic Growth in Nigeria. Journal of Economic Management. •Onoh (2007): Dimensions of Nigeria’s Monetary and Fiscal Policies-Domestic and External. Aba: Astra Meridian Publishers •Oyinlola O, (1993). Nigeria’s National Defense and Economic Development: an Impact Analysis. Scandinavian Journal of Development Alternatives. •Peacock, A. T. & Wiseman, J. (1961) The Growth of Public Expenditure in the United Kingdom.
Cambridge: NBER and Princeton: Princeton University Press. •Peter S, (2003). Government Expenditures Effect on Economic Growth: The Case of Sweden, 1960-2001. A Bachelor Thesis Submitted to the Department of Business Administration and Social Sciences, Lulea University of Technology, Sweden. •Ranjan KD, Sharma C, (2008). Government Expenditure and Economic Growth: Evidence from India. The ICFAI University Journal of Public Finance, 6(3): 60-69. •Shioji, E. (2001). “Public Capital and Economic Growth: A Convergence Approach. ” Journal of Economic Growth 6: 205-227. •Sturm, J. E. (1998).
Pubic Capital Expenditure in OECD Countries: The Causes and impact of the Decline in Public Capital Spending. Edward Edgar Publishing Limited. •Samuelson, P. A. and Nordhaus, W. D. (1998): Economics (16th ed. ) New Delhi: Tata McGraw-Hill Publishing Company Ltd. •Wagner, A. , (1883) “Three Extracts on Public Finance”, translated and reprinted in R. A. Musgrave and A. T. Peacock, Classics in the Theory of Public Finance, London: Macmillan, 1958. CHAPTER THREE METHODOLOGY 3. 0 INTRODUCTION This chapter deals with the statistical methods of data collection, presentation and analysis.
Also the methods employed in solving the research questions and testing hypothesis would also be considered. We also specify the model to be used to investigate the impact of Government expenditure on road infrastructure on growth. 3. 1 RESEARCH DESIGN The research is divided into 5 chapters which are discussed briefly below, 3. 1. 1 Chapter one- deals with introduction, background to the study, significance of the study, aims and objectives of the study, and scope and limitation of the study. 3. 1. 2 Chapter two- this entails literature review and the theoretical framework of the research. 3. 1. Chapter three- this details overall method used in the research work, it covers the research design, sources and nature of data, scope of study, re-statement of hypothesis, re-statement of research questions and model specification. 3. 1. 4 Chapter four-this deal with the presentation and analysis of the data collected and analyzed. 3. 1. 5 Chapter five-this shows the recommendations, summary and conclusion. 3. 2 METHOD OF DATA ANALYSIS The econometric technique to be adopted for the study would be the multiple regression technique because the study deals with more than one independent variable.
The study will involve time series data from 1990-2010, a period of 21years. The E-views (Econometric- views) statistical package would be used for the regression analysis. Total capital expenditures and Total recurrent expenditures would be used as proxy variables to measure the impact of government expenditure on economic growth. The results of the data collected and the analysis will be discussed and presented in chapter four. 3. 3 SOURCES AND NATURE OF DATA Due to the nature of the topic, secondary data would be generated from the C. B. N statistical bulletin, annual reports from C. B.
N journals and newspapers. Secondary data are information that are not retrieved from their original state and they are used for this research work due to their reliability and relevance to this research topic. 3. 4 MODEL SPECIFICATION An economic model is a mathematical expression used to measure the economic relationship existing between economic variables. (Dependent and Independent). Mathematical Model GDP=f (TCAP, TREC, IFR) Where GDP is Gross Domestic Product TCAP is Total Capital Expenditure TREC is Total Recurrent Expenditure IFR is Inflation Rate f denotes the functional relationship
Econometric Model GDP=B1+B2TCAP+B3TREC+ B4IFR+UI Where B1-intercept B2, B3, B4-slope coefficients GDP-Gross Domestic Product, Dependent variable TCAP-Total Capital Expenditure, Independent variable TREC-Total Recurrent Expenditure, Independent variable IFR-Inflation Rate, Independent variable UI-error term, denoting other explanatory variable that exert influence on GDP but are not explicitly included in the model. A piori Expectation- it is expected that B1>0, B2>0, B3>0, B4 T tab reject H0 T cal < T tab reject H1 3. 6. 3
Standard error tests- this would be used to test the precision of the model estimates Decision Criteria Se (B) < B/2 accept H1 Se (B) >B/2 accept H0 3. 6. 4 F-Statistics This would be used to test for the overall or joint statistical significance of the explanatory variables on the explained variable. Decision Criteria F cal > F tab reject H0 F cal < F tab reject H1 3. 7 RE-STATEMENT OF HYPOTHESIS H0: Government spending (capital and recurrent expenditure) does not have any significant impact on Gross domestic product H1: Government spending (capital and recurrent) has significant impact on Gross domestic product 3. RE-STATEMENT OF RESEARCH QUESTIONS The research will attempt to answer the following research questions: 1. Is there any causal relationship between government expenditure either capital or recurrent expenditure and economic growth in Nigeria? 2. What impact does public spending on Infrastructural facilities have on economic growth in Nigeria? 3. Is it true that as the nation is expanding its public expenditure on provision of infrastructural facilities, the economy has been growth-enhancing? ? 3. 9. REFERENCES •Damodar Gujarati (2000): Basic Econometrics 5th Edition •Afolabi G.
K and Okezie G. N (2006) Project Writing and Supervision. Goldfield Educational Publishers. ? CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND INTERPRETATION 4. 0 INTRODUCTION This chapter deals with the presentation, analysis and interpretation of all data collected, this is to ascertain whether the outcome of the data collected and analyzed corresponds with the hypothesis or not. Also the chapter seeks to analyze data collected and draw inferences based on data collected so as to identify the impact of government expenditure on road infrastructure on growth. 4. 1 DATA PRESENTA