Revista Internacional de Economía y Ciencias de la Gestión

The Contribution of Government Expenditure on Economic Growth of Nigeria Disaggregated Approach

Abstract

Eugene Iheanacho

This study examines the long and short run relationship between public expenditure and economic growth in Nigeria over the period of 1986-2014, using Johansen cointegration and error correction approach. Two components of public sector expenditure and gross capital formation ratio are derived from Cobb Douglas production function. The result shows recurrent expenditure is the major driver of economic growth in Nigeria. Controlling for the influence of non-oil revenue, this study shows a negative and significant long run relationship between economic growth (rgdpc) and recurrent expenditure coexists with a positive short run relationship, highlighting the dual effects of recurrent expenditure on economic growth in Nigeria. For the capital expenditure, this study documents negative and significant long run effect of capital expenditure on economic growth in Nigeria. The variance decomposition confirms the collective contribution of public expenditure on economic growth. The finding of this study have some policy implications for policyholders because it could be guide on effective utilization of public funds on rightful projects rather than spending it on enormous projects that will not translate into meaningful growth of the economy