Full Project – Impact of government expenditure on Nigerian economic growth (1981 – 2010)

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CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Following the classical prescription before the great depression of the 1930’s the role of government in the economy were Limited to the few of services like law and order, natural security and promotion of property rights. Adam Smith (1776) in his discussion of the proper role of the government listed three factors. First “protecting the society from the violence and invasion of other independent societies, secondly, protecting as far as possible every member of the society from injustice or oppression every other member and thirdly, erecting and maintaining those public work which through they may be in the highest degree advantages to a great society are however of such a nature that the profit could never repay the expense to ay individual or small group of individual this list is referred to as the care function of the government. Today however, the economic role of the government has expanded to include consumption and investment expenditure.

Government or public expenditure has served as most commonly used fiscal policy in growth, expansion, structural transformation and diversification of economic base. Public expenditure is used for allocation, stabilisation and distribution (Musgrave and Musgave, 1989). Hence, public expenditure programmes is a comprehensive set of expenditure policy measures, designed to achieve a given set of macroeconomic goals including the restoration of equilibrium between aggregate domestic demand and supply (IMF 1993).

According to Gwartney (1998) while countries have moved towards economic freedom and open markets, government expenditure has increased more and more. Government expenditure can be defined as spending by the national and local government and some government based institutions. Economic growth is an increase in output or income overtime, it is a positive change in the level of production of goods and services over certain period of time. Economic growth is measured using real gross domestic product (G.D.P).

There are few more hoting debased topics in economic that what the government expenditure plays in economic growth. Keyesian argued that government should manage the amount of demand in an economy to maintain full employment. Since the 1950’s there has been growing evidence that government intervention can also be flowed and can be imposed even greater cost in an economy than market failure. There have been growing concern that government investment expenditure have been, crowding out supervisor private investments.

Government expenditure has continued to increase as a share of GDP within the organisation of economic Co-operation and Development (OECD) countries, government expenditures amounted for a larger size of GDP in 2002 that in 1999. In Nigeria, as in most countries, this is the case. Why this increase in government expenditure? Is it in the interest of the nation that the share of government expenditure in GDP is increasing?

Most growth theories like the big push theory and the balanced growth theory among others aimed at improving the growth rate in developed countries. This need for development is hindered by lies saving which is a result of low aggregation income in most developing countries.

1.2 STATEMENT OF THE PROBLEM

According to Dunnet (1990) economic growth is an increase in real per Capital Gross National Product (GNP). Economic growth is the steady process by which the productive Capacity of an economy is increased over time to bring about rising levels of national output and income. Growth is an engine of development. There can be no development without growth hence; economic growth is desirable since it is associated with an increase in welfare.

At the dawn of this new millennium, Africa in general Nigeria in particular still faces monumental development like new level of living characterised by low per capital income inequality, poor health and inadequate education. All these are consequence of poverty.

Nigeria present a paradox the country is rich but the people are poor. Per capital income today in Nigeria is around the same level as 1970. Meanwhile between 1970 and 2000 over $200 million has been earned from the exploitation of countries resources. Nigeria is rich on land, oil, people and natural Gas Resources, yet Nigeria has been bedevilled with debts problems until just recently when her debt was forgiven.

Nigeria has been classified by the World Bank as a low income developing country. She is characterised by wide spread of poverty not less than 60% of Nigerian population are below development report (UNDP) 1988.

The better reality of the Nigeria situation is not yet that the poverty line is getting worse by the day but more than four ten of Nigerians live in conditions of extreme poverty of less than ₦320 per month which barely provide for a quarter of the nutritional requirement of health living.

The sluggish growth of the Nigeria economy despite the increase in government has been rather surprising since independent according to Kweka, P. J. (1969 – 1986, 1999), government consumption and investment expenditure in Nigeria has been on the increase. On the other hand, has not been regular in fact it has been less static. The decade of 1980’s is generally referred to as Africa “last decade of development opportunities” Nigerian economy crisis in the early 80’s was attributed to several factors including the collapse of price. The rise in international interest rate and domestic policy mistakes.

In order to successfully map out strategy for accelerating Nigeria’s growth rate in the year ahead, it is necessary to fully understand the source of economic growth in Nigeria during the past four decades, one with notice that government expenditure in Nigeria has been on the increase. To what extent does this increase in government spending affect the level of growth in Nigeria? In this work, using data on Nigeria government expenditure from 1980 – 2009, we will try to answer the question; Does government expenditure cause the bring about in economic growth in Nigeria?

1.3 OBJECTIVE OF THE STUDY

The objective of the study was specifically;

1. To find out if government expenditure significantly affect economic growth in Nigeria.

1.4 STATEMENT OF HYPOTHESIS

The following null hypothesis will be tested at 0.05 level of significance.

H0: Government expenditure does not significantly affect economic growth in Nigeria.

1.5 SIGNIFICANCE OF THE STUDY

The result of the study will be of great benefit to the federal republic of Nigeria because economic growth is the motor *vehicle) of development. Development is the sustained education of an entire society and social activity towards a better tomorrow and more human life. The result of this study will be significant in the following ways:

1) It will help the Nigerian government and her policy makers to restore fiscal discipline in Nigeria.

2) The study will be important in debt management in Nigeria. This include government restricting expenditure within he constraints imposed by available revenue.

3) It will also have implication for formulating a workable model for Nigeria.

1.6 SCOPE AND LIMITATIONS OF THE STUDY

This study will use an empirical analysis of macro-economic environment that prevailed in Nigeria between 1981 and 2010. However, literature especially and notable works and event that relates to the study will be examined.

In the course of this work, many problem were encountered which affected the final result.

First, the death of required statistics and limited access to literature. Some journals and publications which could have been of immense help to this work were unavailable.

Secondly, the results of the fourth chapter were somehow affected by the problem of the use of secondary data in Nigeria. Most of the estimates are not reliable.

Thirdly, there is the limitation of the small sample size which has its attended drawbacks. This research work is limited by a number of constraints; greatest is the absence of vital data that would have boosted its result expectation. There is also lack of strong evidence in the theoretical framework of this topic that would have provided a reliable foundation for us to stem from and particularly Nigeria case. Time constraint is equally one of them.

Due to the above constraints the data to be used are mainly secondary data.

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Full Project – Impact of government expenditure on Nigerian economic growth (1981 – 2010)