Examining Government Spending and its Effect on Economic Growth in Nigeria: An Error Correction Approach

Abstract

The study employed co-integration and error correction model to investigate the effects of government spending on economic growth in Nigeria over the period from 1980 to 2022. The study entailed the acquisition of time-series data from the statistical bulletin of the Central Bank of Nigeria. The results of the unit root test showed that all variables in the model were non-stationary at their initial levels but integrated at a first-order, denoted as I(1). In the long-term analysis, Real GDP indicates a positive and significant linear connection between the two factors. However, in the short term, capital expenditure demonstrated a favorable impact and a significant association with economic expansion. On the contrary, recurrent expenditure and inflation displayed harmful but insignificant effects on economic growth. Based on the findings, it is suggested that the government should consider improving the compensation and benefits of its workforce. Nevertheless, strict oversight should be maintained over these expenditures, with thorough monitoring of the program's progress from inception to completion. These measures are expected to indirectly contribute to the economic growth and prosperity of the nation.