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THE EFFECT OF GOVERNMENT CAPITAL EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA

Dept: ECONOMICS File: Word(doc) Chapters: 1-5 Views: 19

Abstract

The fact remains in the heart of many people that high government expenditure will lead to economic growth, especially in developing country like Nigeria. This paper therefore, is an attempt to empirically ascertain that fact by investigating the impact of government expenditure on economic growth in Nigeria from 1985-2016. The variables are government total expenditure on education (GTEE), government total expenditure on health (GTEH), labour (L) and money supply (MS). To establish this empirical fact we employed multiple regression model of Ordinary Least Squares using secondary data. From the result, government total expenditure on education, government total expenditure on health and labour positively and significantly affect economic growth in Nigeria. One of the major challenges of poor utilization of government expenditure is the issue of mismanagement of funds, the author recommends that government should increase its funding of anti-corruption agencies like the Economic and F

CHAPTER ONE

INTRODUCTION

 

1.1 BACKGROUND TO THE STUDY

Economic growth can be defined as the overtime increase in the ability to provide economic goods to a populace in a particular country. (Simon Kuznets, 2004). Without doubt, economic growth is necessary, but it is not a sufficient condition for the realization of a desired developed economy. In other words, an economy experiencing growth still requires other conditions in order for it to attain development.

Economic growth is essential for sustainable development. (Olutola, 2013). Under normal circumstances, it is expected that of any economy experiencing growth, which is indicated by an increase in its GDP, a decrease in its unemployment rate should occur. Economic growth implies productivity in economic activities which enhance the output of such an economy. An increase in output leads to more income which brings about greater investment in the economy, and even greater productive activities involving the labour force. According to (Jhingan, 2001), economic growth is a sustained increase in the output or income per person produced by a country followed with increase in volume of trade, capital and consumption. Generally speaking, economic growth spurs more growth and increased productive activities in all the other sectors of the economy.

However, the nature of growth an economy may be experiencing goes far to determine whether it will bring about increased employment or not.

On one hand, an economy may be experiencing high rate of growth but with a high level of inequality implying an uneven distribution of the income generated from production. Hence, only a few within the economy are benefiting from the growth which obviously includes the rich in the society. This type of growth is characterised by increased unemployment rate or what is rather termed ‘jobless growth’. This type of growth does not bring about development in that economy but just mere increase in output, without the living standard of majority of the people being improved, especially in the basic areas such as health, education, life span etc. and going by the popularised saying of Mahatma Gandhi, poverty anywhere in the world, will pose a threat to prosperity everywhere in the world.

On the other hand, an economy may be experiencing what is now referred to as an ‘inclusive growth’. This implies that given the increase in output, there is to a reasonable extent an even distribution of income, thus a reduction in the inequality level. This is the kind of growth that helps to increase the employment rate. It is the kind of growth where not only the rich, but also the poor benefit from. It is a growth that helps to reduce poverty and other socio-economic vices thus leading towards development. This is the reason why the United Nations, International Monetary Fund and other International Economic Organisations have included the concept of inclusive growth to their objectives.

Evidence from the Central Bank of Nigeria reveals that the Gross Domestic Product (GDP) growth rate of Nigeria as at the second quarter of 2013 is 6.72 percent, while the rate of unemployment is 23.9 percent as stated by the National Bureau of statistics. The previous GDP growth rate was 6.56 and that of unemployment was 21.10. When compared to the economic growth rate and the unemployment rate of the preceding years, it is very much clear that as the growth rate is increasing, unemployment is increasing as well. Unemployment has been increasing in the midst of economic growth. This triggers a major concern, making one to wonder if the economic growth is mere figures.

If the nature of growth in Nigeria becomes inclusive, causing the rate of unemployment to decrease as well as the level of inequality, it will bring about tremendous changes and improvements in the economy. This is due to the attribute common to Africans to be highly dependent people. One member of the family in the labour force may not only provide the needs of himself or his immediate family but also that of the people depending on him. In other words, an increase in the employment rate will lead to a more than proportional improvement in the economy.