Munich Personal RePEc Archive

Does government spending spur economic growth in Nigeria?

Maku, Olukayode E. (2009): Does government spending spur economic growth in Nigeria? Forthcoming in:

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Abstract

This study examines the link between government spending and economic growth in Nigeria over the last three decades (1977-2006) using time series data to analyze the Ram (1986) model. Three variants of Ram (1986) model were developed-regressing Real GDP on Private investment, Human capital investment, Government investment and Consumption spending at absolute levels, regressing it as a share of real output and regressing the growth rate real output to the explanatory variable as share of real GDP. Result showed that private and public investments have insignificant effect on economic growth during the review period the review period. An attempt to test for presence of stationary using Augmented Dickey Fuller (ADF) unit root test reveals that all variables incorporated in the model were non-stationary at their levels. In an attempt to establish long-run relationship between public expenditure and economic growth, the result reveals that the variables are cointegrated at 5% and 10% critical level. With the use of error correction model to detect short run behaviour of the variables, the result shows that for any distortion in the short-run, the error term restore the relationship back to its original equilibrium by a unit. A number of suggestions were however made on how government spending should be channel in order to influence economic growth significantly and positively in Nigeria.

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