Government Spending and Nigeria's Economic Growth

Abstract

This study investigates the relationship between government spending and economic growth in Nigeria from 1981 to 2024, disaggregating expenditures into recurrent and capital components across administration, economic services, social/community services, and transfers. The study adopts an ex-post facto research design, employing secondary data sourced from the Central Bank of Nigeria Statistical Bulletin and the Nigerian Bureau of Statistics. The analytical framework comprises stationarity tests, ARDL bounds testing, lag length selection, short-run and long-run ARDL estimation, and error correction modeling to examine both immediate and sustained effects of government expenditure on GDP growth. The findings reveal that recurrent administrative and economic service expenditures significantly stimulate short-term economic activity, while recurrent and capital transfers show limited impact in both the short and long term. In the long run, capital expenditures on economic services and social/community sectors emerge as the most potent drivers of sustained economic growth, confirming the theoretical predictions of Keynesian and Wagnerian frameworks. The study shows the importance of strategic allocation and efficiency in fiscal policy, recommending prioritization of capital investment in productive sectors alongside targeted recurrent spending to optimize both short-term and long-term economic outcomes. The results contribute to the literature by providing empirical evidence on the differential impacts of government expenditure components on growth in Nigeria, highlighting policy pathways for enhancing fiscal effectiveness and promoting sustainable development.

Keywords

• Government spending
• economic growth
• capital expenditure
• recurrent expenditure

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