The Effect of Public Spending on the Economic Growth of Nigeria


This is an introductory research work, background and historical perspective of the effect of public spending on the economic growth of Nigeria. It identifies the key effects of public spending on the Nigeria economic. 

The chapter one concludes with a discussion of the significance or purpose of the study limitations of the study and the definition of terms.

Background of the Study

The relationship between economic growth and public spending is an important subject of analysis and debate (Mitchell, 2005). One central question is whether or no government spending increases the long run steadily state growth of the economy. 

Some scholars are of the opinion that public expenditure, notably on physical infrastructure and human capital, can be growth enhancing although the financing of such expenditures can be growth retarding in the short run.

Increasing government expenditure translates into increased employment in the public sector and increased orders of products from suppliers and firms in the business sector. 

According to the Keynesian model, if demand increases, business concerns produce more merchandise and services, and the result is a substantial increase in the GDP, far more than the increase in government spending. 

Budgetary expansion acts as a catalyst to increase demand and production within sectors that do not have direct contact with public demand. Thus, the Keynesian school of thought stresses that an utopian society cannot be achieved and as such there is need for government to interfere through her fiscal operations; notably expenditure.

There is no consensus, however, in the theoretical literature on the impact of public expenditure on growth (Paternostro et al, 2007). And empirically, there are lots of studies on the relationship between public expenditure and economic growth. 

Studies like Bose, N et al (2007), Haque and Kim (2003), Sutherland et al (2009) found significant positive growth effects of public expenditure, others especially on the rich countries indicated that large government size is detrimental to economic growth (Schaltegger and Torgler 2006) and Abu-Badaer and Abu Quarn (2003). 

Thus, the grounds of allocating public expenditure to areas that are more likely to contribute to growth need to be clearly established empirically. Unfortunately, the studies mostly available are cross-country studies. 

This study is a country specific study that focuses on Nigeria, where there is growing contest over “fiscal space” by various sectors, regions and different arms of government. 

Some scholars have argued that increase in government spending can be an effective tool to stimulate aggregate demand for a stagnant economy and to bring about crowed-in effects on private sector. 

According to Keynesian view, government could reverse economic downturns by borrowing money from the private sector and then returning the money to the private sector through various spending programs. 

High levels of government consumption are likely to increase employment, profitability and investment via multiplier effects on aggregate demand. 

Thus, government expenditure, even of a recurrent nature, can contribute positively to economic growth. On the other hand, endogenous growth models such as Barro (1990), predict that only those productive government expenditures will positively affect the long run growth rate.

Despite the rise in government expenditure in Nigeria over these years, there are still public outcries over decaying infrastructural facilities. Also, merely few empirical studies have taken holistic examination of the effect of government expenditure on economic growth regardless of its importance for policy decisions. 

More so, for Nigeria to be ready in its quest to become one of the largest economies in the world by the year 2020, determining the effect of public expenditure on economic growth is a strategy to fast-track growth in the nation’s economy.
A crucial question that requires an urgent answer is whether the government aggregated, disaggregated and sectoral expenditures impact positively on economic growth of Nigeria. 

This study attempts to provide an answer to this question by empirically estimating the effects of disaggregated and sectoral educational expenditure on economic growth in Nigeria. 

This study comprises section one introduction, section two review of related literature, section three is methodology and section four is conclusion and recommendation.

Statements of the Problem

There is a division among policymakers as to whether increase in government expenditure hinders or promotes economic growth. Advocates of increase in government expenditure argue that government programmes provide valuable “public goods” such as education and infrastructure. 

They also claim that increased government expenditure can encourage economic growth by putting money into people’s pockets while proponents of decrease in government expenditure argue that government is too big and that higher spending undermines growth by transferring additional resources from the productive sector of the economy to government, which uses them less efficiently. They also war that an expanding public sector complicates the efforts of implementing pro-growth policies.


 The research methodology deals with the tools to be use in presentation and analysis of the empirical results obtained from the estimation exercise. The study of the impacts of effects of public spending on the economic growth of Nigeria hence the use of regression analysis to predict (estimate) if the independent variable (government spending) affects economic growth. 

Table of Contents

1.0 Chapter Overview 
1.1 Background of the Study
1.2 Statements of the Problem
1.3 Research Questions
1.4 Objectives of the Study
1.5 Hypothesis of the study
1.6 Purpose or significance of the Study
1.6 Definition of Terms
1.7 Limitations of the study

2.0 Introduction
2.4.1 The leading role of cognitive skills
2.6.1 Musgrave Theory of Public Expenditure Growth
2.6.2 The Wagner’s Law/ Theory of Increasing State Activities
2.6.3 The Keynesian Theory

3.1 Introduction
3.2 Research Design 
3.3 Population and Sampling technique 
3.4 Method of Data Collection
3.5 Procedure for data Analysis and model specification. 
3.6 Justification of Methods
3.7 Summary


1. Abu, N. Abdullahi, U. (2010) “Government Expenditure and Economic Growth in  Nigeria, 1970-2008: A Disaggregated Analysis”, Business and Economics Journal, Volume 4 pages 2-4 

2. Abu-Bader S, Abu-Qarn AS, 2003. Government Expenditures, Military Spending and   Economic Growth: Causality Evidence from Egypt, Israel, and Syria. Journal of Policy Modeling, Vol. 25, Nos. 6-7, pp 567-583. 

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