Impact of Government Expenditure on Economic Growth in Nigeria

Abstract

This study examined the impact of government expenditure on economic growth in Nigeria, with particular emphasis on its long-run and short-run effects and the causal relationship between government expenditure and economic growth. The study was motivated by the persistent increase in public expenditure in Nigeria alongside relatively weak and unstable economic growth, as well as the inconclusive findings reported in the existing literature. Annual time-series data covering 1981–2024 were employed, with real gross domestic product (RGDP) serving as the measure of economic growth, while government expenditure (GEXP), gross fixed capital formation (GFCF) and inflation (INF) were incorporated into the model. The findings indicate that increases and decreases in government expenditure do not exert identical effects on economic growth, thereby providing evidence of asymmetry in the expenditure-growth relationship. The diagnostic tests further indicated that the estimated model was free from serial correlation, heteroskedasticity and functional-form misspecification at the 5 percent significance level. The Granger causality results revealed a significant causal relationship between government expenditure and economic growth at the conventional 5 percent threshold, while the direction of causality was not uniform across the variables. Based on these findings, the study recommends that Nigerian fiscal authorities should prioritise productive and growth-enhancing expenditure, strengthen expenditure monitoring and ensure that fiscal expansion is channelled towards investments capable of improving productive capacity and sustaining long-run economic growth.