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Does Public Capital Influence Output Growth? Further Evidence from Nigeria

Ibrahim, Taofki (2018): Does Public Capital Influence Output Growth? Further Evidence from Nigeria.

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Abstract

This study investigates the nexus between public capital and growth. The study made use of the Vector Error Correction Model (VECM) which is a multi-equation framework to capture all plausible effects of public capital on output growth (measured by growth rate of real GDP) in Nigeria between 1980 and 2015. The results of the econometric estimations revealed that there exist a long run relationship between output growth, public capital, private capital, public consumption and labour. Although public capital was found to have the expected positive sign, it was insignificantly related to growth. This suggests a positive correlation between public capital and output growth. The results also indicate that private capital positively impact on output growth while public consumption negatively affects output growth in Nigeria. Furthermore, the results showed the presence of crowding-out effect, suggesting that public capital has not impacted meaningfully on private investment in Nigeria. The study therefore recommends that government should embark on public capital expenditure in sectors that would smoothen the function of the market to promote growth and development in a country.

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