Public Spending and Economic Growth Nexus: Recent Evidence from Nigeria

Abstract

This paper utilized annual time series data from 1996 to 2024 to explore the effect of government expenditure and corruption on Nigeria’s economic growth. The study employed the Fully Modified Ordinary Least Squares (FMOLS) since our variables recorded higher order of integration. From the result, it was observed that total government expenditure negatively impacted on Nigeria’s economic growth insignificantly while corruption exerted a statistically significant negative effect. By disaggregating government expenditure into function (capital and recurrent) components, our result portrayed that while capital expenditure exerted significant positive effect on economic growth, the recurrent component exerted a significant negative effect on economic growth in Nigeria. Further disaggregating the model into sectoral basis portrayed that while expenditure on economic services and that of social and community services are growth-enhancing, government expenditure administration and transfers do not spur growth. In all these disaggregation’s, corruption still exerts deleterious significant effect on Nigeria’s economic growth. The paper therefore recommended the need to reallocate government expenditure, improve efficiency of government spending and strengthen institutions, prioritize spending, enhance transparency and accountability, and monitor and evaluate public spending.

Keywords: Government Expenditure, Economic Growth, Corruption, Institutions, FMOLS