Impact Of Government Expenditure On Economic Growth In Nigeria

Abstract

This paper examines the impact of government expenditure on economic growth in Nigeria from 1988 to 2023 using annual timeseries data from the Central Bank of Nigeria Statistical Bulletin. Government expenditure is disaggregated into recurrent expenditure, capital expenditure, and transfer payments, while economic growth is proxied by gross domestic product. The empirical strategy employs Augmented Dickey-Fuller unit root tests, Johansen cointegration analysis, Granger causality tests, and Dynamic Ordinary Least Squares estimation. The unit root results show that the variables are stationary after differencing, with transfer payments stationary at level, while the Johansen test confirms a long-run relationship among the variables. The DOLS estimates indicate that recurrent expenditure has a positive and statistically significant effect on economic growth, whereas capital expenditure has a positive but statistically insignificant effect. Transfer payments exert a negative and statistically insignificant effect on growth. The causality results reveal unidirectional causality from recurrent expenditure to GDP and bidirectional causality between transfer payments and GDP, while no causal relationship is found between capital expenditure and GDP. These findings suggest that the growth effect of government spending in Nigeria depends not merely on the size of expenditure but on its composition, efficiency, and implementation quality. The paper recommends improved expenditure efficiency, stronger monitoring of capital projects, rationalization of transfer payments, and better alignment of public spending with productivity-enhancing sectors.