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 introducedin 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.