COMPLETE SCHOOL PROJECT TOPICS & MATERIALS :
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Abstract

Implementing the Millennium Development Goals (MDGs) demands effective public expenditure management that is imbued with transparency and accountability measures to achieve strategic outcomes. Undoubtedly, developing countries, although to varying degrees, continue to grapple with

the mechanics of good governance, resource management, including effective revenue generation and efficient allocation of public funds. This paper represents part of a larger research agenda to assess how fiscal policy influence economic growth in Nigeria. The paper attempts to assess the effects of government expenditure on economic growth in Nigeria. The essence of the study is to determine the components of government’s expenditure that enhances growth, and identify those that do not, and recommend that they should be reduced to the barest minimum. The paper is broadly consistent with literature and it opens new grounds by focusing on the long-run impact of fiscal policy. The analytical framework is based on econometric methodology encompassing, test for Stationarity, test for cointegration and the specification of an error correction model. The study found no significant relationship between most of the components of government expenditure and economic growth. The estimation results were mixed, in particular some of the variables were weakly significant. However, it provided important clues to the future direction of research.

CHAPTER ONE

INTRODUCTION

1:1 Background of the Study

The place of public expenditure as a catalyst to economic growth is not in doubt. Infact, as early as 1893 Adolf Wagner had formulated the law of expanding state activity which states that government expenditure leads to a higher level of economic development. The postulate was derived from the
nineteenth century German experience of rapid industrial and economic growth.
According to Herming (1991) public expenditure is government
spending on production of goods and services not necessarily for present consumption, but includes public spending that adds to public physical capital stock, such as building of roads, ports, schools, hospital etc. Public expenditure represents a form of government intervention designed to promote allocative efficiency through a correction of market failures,
redistribute resources equitably and promote economic growth and stability.
Economic growth is fundamental for sustainable development. It is not possible, for a developing country, to ameliorate the quality of life of its growing population without economic growth. This is mainly enhanced by the expansion of infrastructure repair, the improvement of education and
health services, the encouragement of foreign and local investments, low cost housing, environmental restoration, and the strengthening of the agricultural sector. This approach consists of stimulating the economy by addressing the nation’s foremost needs. Dealing with these issues will result
in a great amount of money spending by the government and certainly lead to substantial budget deficits. However, this would generate a large number of socially useful jobs and business opportunities. Interest in public expenditure has been on the increase especially in developing economies as they strive towards sustainable economic
development. However, given the openness of less developed countries, trade dependency and vulnerability to external shocks, the role of government becomes germane to adjustment and stabilization programmes.
The basis of this being that sector with high social priority and low rates of return would not attract private investment and hence the need to channel government funds.
The effectiveness in stimulating economic growth has been
empirically contentious. Two schools of thought exist in the discussion of government participation in the economy. The first argues that larger participation by government is inimical to efficiency, productivity and growth in the system. The basis for this view is that public sector is not responsive to market signals as it has an enormous regulatory process and
engenders higher production costs and is prone to distortions arising from both monetary and fiscal policies. They contend that the operation of government is inherently bureaucratic and inefficient and therefore stifles rather than promote growth.
The opponents of this school argue that the participation of
government in economic activity can spur long-run growth. They cite government role in ensuring efficiency in the resource allocation, regulation of markets, stabilization of the economy and harmonization of social conflicts as some of the ways in which government could facilitate economic
growth. They further articulate the need for provision of certain goods and services that would otherwise not be provided by private sector, in order to place the economy on a predetermined growth path using the premises of
market failure arising from externalities, they contend that the aim of government is to attain better allocative and distributional equity through greater disbursement of public and quasi public goods. The basis of this is that sectors with high social priority and low rates of return would not attract private investment and hence the need to channel funds.
Public Finance encompass government capacity to raise revenues, set spending priorities, allocate resources and effectively manage the delivery of those resources. Public expenditure pattern is concerned with how effectively public resources are utilized to meet the needs of the economy in an equitable manner.
The trend of rising public expenditure in developing countries since independence call for worry, this increasing expenditure can be attributable to three factors. First, the independence necessitates the assumption of diplomatic services abroad, and their own defense expenditure. Secondly, government assumes greater roles for social services and as well as public investment programmes in these fields. Finally, increasing population and GNP calls for more public expenditure and engenders higher production costs.